July 12, 2022
Are you ready to knock out your mortgage payments and own your home free and clear? There are a variety of ways to pay off your mortgage early; find a method that works for you.
If you’ve decided that paying off your mortgage early is the right financial move, it’s time to figure out how you want to pay it off. Here are three options:
Putting extra money toward your principal each month is one of the easiest ways to pay off your loan early. Mortgages are typically 15- or 30-year commitments, so paying a little extra each month can really add up.
For example, paying an extra $50 each month on a $200,000, 30-year loan with a 4% interest rate can knock off almost three years of payments—and you’ll save $14,900 in interest.
Most homeowners pay their mortgage monthly, which adds up to twelve payments each year. But if you split your monthly payment in half and pay biweekly, you’ll end up paying a total of thirteen payments per year—and you may hardly notice the extra payment.
If you prefer to stick to a monthly payment schedule, tax season is a great time to commit to an extra payment. In 2022, the average American received $3,226 as their tax refund, which is likely more than enough to cover one extra payment.
You can shorten the length of your loan at any time by making a large, lump-sum payment toward your principal. People often make these payments after receiving an influx of cash such as an inheritance or large bonus.
Making a lump-sum payment will eliminate months—or years—of payments, but your monthly payment amount will stay the same. Call us at 800-365-7107 before you pay to let us know that the payment should go directly to your principal and not toward any interest.
Depending on your loan type, you may be able to recast your mortgage when you make a lump-sum payment. A recast will lower your total loan amount and your monthly payments, but your loan term and interest rate will stay the same. Call us at 800-365-7107 to find out if a recast is right for you.
Paying off your mortgage early can save you a lot of money, but it’s important to do some research and review your finances before deciding to do so. Take into consideration the amount of money in your emergency fund and retirement accounts as well as any other debts you may have before making a final decision.
Once you’re ready, choose a payoff method that works for your budget and get started! When you’re nearing the finish line and you have only a few payments left, follow these steps to avoid hitting any snags in the loan payoff process.
After that, enjoy the freedom of home ownership!