Payoff a Mortgage Early
Tips on How to Payoff a Mortgage Early and the Right Way
Paying more than the minimum required can help accelerate your repayment plan and pay off your mortgage early. This is why paying extra on your mortgage is often referred to as a snowball strategy in personal finance. When you make your mortgage payment, write down the amount you pay and how much cash you have left toward your other financial goals. Determine how long it will take to pay off your mortgage if you make this payment according to the minimum required.
1. Make Extra Payments on Your Mortgage
When you make your mortgage payment, there are three ways to pay more. You can add extra money for your monthly payment, borrow against a home equity line of credit or take out a cash advance from the loan company. Pay extra on the portion of your mortgage that makes up the current principal balance. The current principal balance is the difference between your mortgage and the loan amount you have already paid. This can give you a bigger payoff when your final payment comes due. Paying extra on the amount that makes up the current interest will only save you money. Use an early mortgage payoff calculator to help get an idea of where you are at.
2. Refinance Your Mortgage
Before you refinance your mortgage, make sure you can afford to pay your current mortgage payment with the new lower rate. Refinancing a mortgage that has a low-interest rate can lower your monthly payments or if the loan does a certain purpose that makes it ideal for your situation then you might want to consider it. This new loan can but not always come with a longer term, meaning the interest you pay over time will be higher than what you would have settled on the original mortgage. Refinancing involves getting a new loan for the same amount you owe on your current mortgage. You can pay off the old loan and take out a new one. Refinancing might save you money, it could create an opportunity for a shorter term and a reset of the interest rate. This could potentially reduce the amount of interest that accrues on a loan. Using this method might reduce the interest you pay while increasing how much is applied toward your principal balance.
3. Make Lump-sum Payments Toward Your Principal
You might pay a lump sum toward the principal when you make your mortgage, check to make sure you do not have a prepayment penalty. This might reduce the payments required to repay your loan and could possibly give you bigger savings. You might also make larger lump-sum payments than those made automatically through a payroll deduction or as a credit on your monthly statement. Borrowing money against your home equity line of credit might also be an option that can be used in this manner. When your lender allows you to borrow against your equity line, you can use the funds to accelerate your mortgage payoff. However, potentially could also mean facing an increased loss if you sell the property before the term ends.
4. Recast Your Mortgage
When you must sell a home before you pay off your mortgage, you may want to strategize with the loan's payments after closing. You might be able to give the lender a new note allowing you to pay your mortgage over a longer period than your original one. Some disadvantages when recasting a mortgage include possibly meeting new interest rates or loan terms.
This can help you pay off your mortgage if you are in debt. This is sometimes referred to as debt reduction. You can reduce your interest by decreasing the money you borrow on your mortgage to get out of debt. Once you pay off the loan, then it is a decrease in the total interest owed. This might also take away from what needs to be paid toward your principal balance.
5. Fix Up Your Home
If you want to pay off your mortgage, you might want to consider improving the value of your home. If you plan on selling your house in the short term, make some improvements to maximize how much your home can be sold for. This would include everything from clearing out unneeded items like furniture to fixing up the backyard, painting over worn-out areas, and replacing old or damaged items. This will give it a fresh look and should help it sell for more. Remember that any improvements you make shouldn’t be fully paid for before you sell. Consider paying for upgrades that people notice, such as kitchen and laundry appliances.
Paying off your mortgages early can help in a lot of ways, from potentially recasting your loan, to reduced overall interest over the life of the loan, you'll enjoy the new money in your pockets from paying on your new loan. Figure out what is delaying your progress, and then make changes to help you have a lower mortgage payment. It would help if you didn't have to spend much or dig into savings or other available resources, nor should you have to sell any property to retire your mortgage. Doing so would leave property owners with still-higher levels of interest-carrying costs. Consider refinancing or recasting your loan if you wish to pay off the loan faster.
6. Get a Loan Modification
The lender can modify your loan to change the payment plan and lower your monthly payments, this does not necessarily mean you are paying off your mortgage early, however the terms of your loan might change. This is more geared towards those who perhaps have lost their job and need a forbearance or might have a hard time paying back the loan due to your situation. This however could take advantage of the fact that you have the property, which may give you more favorable terms because the lender may want to work with you so they don’t have a loss and could essentially help you pay off the loan sooner. This might reduce the initial impact you are paying on your loan. Before signing any paperwork, you should check with your lender regarding current interest rates and loan terms. The lender should work with you to ensure the loan is paid off in the agreed-upon amount during the original contract. This could mean payments being made more often than what was required through the initial mortgage term.