7 Ways to Pay Back Your Mortgage Early
Posted: Nov 21, 2018
Summary: Did you know you can save lots of money on interest by paying down your mortgage early? Here are a few ways that can help you get mortgage-free sooner.
The longer you take to pay back your mortgage, the more you would be spending on your interest payments. By paying off your mortgage early not only would you be saving thousands of dollars on your interest payments, you will also be lifting off a huge financial weight from your shoulders. Most mortgage lenders who contact borrowers make it easy for borrowers to pay back their mortgages early. However, attaining a mortgage-free situation requires budgeting and meticulous planning.
Here are 7 ways to help you pay back your mortgage early:
Making bi-weekly payments instead of monthly payments
This is a good way to reduce the term of your mortgage. In the monthly payment mode, you are essentially making 12 payments a year. However, in a biweekly payment program, you are making 26 biweekly payments in a year, which equals to 13 monthly payments. So not only would you be paying lesser total interest, you will also be lowering your principal balance at a quicker pace.
Let us say you have taken out a 30-year fixed rate mortgage of $250,000 at 4% interest. By making biweekly payments you can save about $30,000 in interest charges and pay back your loan 5 years before the due date. If you can manage to pay an extra $200 every month, you can save a lot more and reduce your mortgage term to 22 years instead of 25.
If you find it difficult to keep track of your payments make it a point to set up automatic bi-weekly payments through your bank, as long as they don’t charge you anything extra. But before you do that make sure the lender who contacted you via mortgage live transfer leads accepts these biweekly payments.
Paying an extra $500 per month
If you try it is not too difficult to budget an additional $500 per month to pay back your mortgage faster. This can help you cut down on your high interest payments, especially if you start making it at the beginning of your loan term. It’s not as hard as it sounds. All you need to do is probably give up your daily Starbucks coffee. You could carry a flask instead. You will probably be ready to do this, if you find out how much money and time you can save by making this extra payment of $500 per month towards your mortgage. Here is what you should know…
On a 30 year mortgage of $300,000 taken at an interest rate of 5%, you can save about $124,385 on interest and pay back your mortgage 12 years before the deadline, by making an extra payment of $500 per month.
Do you still want to give up that chance?
Turning your extra bonuses towards your mortgage
If you find it difficult to set aside some extra money every month, you could put all your extra bonuses on your mortgage. This includes your quarterly bonuses, your Christmas bonus and the sales commissions that you earn on those extra sales. They can add up really well and help you pay off your mortgage quickly. Work it out with your company to transfer your bonus electronically so that you don’t see the money and get tempted on using it somewhere else.
Putting the annual tax refund on your mortgage as a one-time extra payment
Almost every borrower gets an annual tax refund on his mortgage. It could come up to thousands of dollars. If you put it towards your mortgage, it could add up to a full extra payment each year. Those family vacations can wait. You can take a lot of them once you finish paying off your mortgage. Make that decision of putting your annual tax refund as an extra mortgage payment. It won’t hurt you much.
Refinancing your mortgage to a reduced term
You can refinance your mortgage to reduce its term. For instance, you can refinance your 30 year mortgage to a 10 year or even a 15 year one. You will only be paying a few hundred dollars extra; but you will be saving tens of thousands of dollars in interest. There are going to be fees and additional closing costs associated with refinancing. You need to figure these out before making your decision. Compare your costs using a reliable online mortgage calculator or just ask the refinancers who get in touch with you.
Refining your budget
Need to find that extra money to pay back your mortgage at the earliest? All you need to do is refine your budget. Find out where your money is going. Sort out the ‘necessary expenses’ from the unnecessary ones. Then just redirect the unnecessary ones towards your mortgage payments. You will be amazed at how much you can save.
Making your payments online and automatic
Not being able to make your mortgage payments on time may make you lose a lot of money on penalties. You can save all this by making your payments online and automatic. This will also prevent you from spending that money on things that you don’t really need.
You may have to find a way to make some extra money or reduce a few expenses that might seem unnecessary. But all your efforts would be worth it when they get you debt-free sooner.
So, talk to the lender who comes to you and finds out if you have to pay any prepayment fees in case you wish to pay back your mortgage early. Weigh this cost against the amount that you can save on interest and then take your decision.
Author writes for Halbart Technologies. A reverse mortgage live transfer leads generation company in New York, US.