Tips for Paying Off a Mortgage Early

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Author: Lucinda Jones

Imagine how it would feel to be free from your mortgage payments years earlier than you expected. Closing your mortgage early grants you more financial freedom and peace of mind. Obviously, there are many benefits to paying off your mortgage early, not the least of which is the thousands of dollars you will save over the life of the loan in interest payments. Many people who took on a mortgage later in life want to pay it off before they retire. While others want to pay off their mortgage early simply so they don’t have the stress of a mortgage payment hanging over them every month.

Once you make the decision to pay off your mortgage, how should you go about it? There are several different ways to pay off a mortgage early. You may try one or more of these, or you may find some of your own.

Make Biweekly Payments.

Rather than making one payment each month, make one payment every two weeks for half of the amount of your monthly mortgage. This may seem like exactly the same thing, but over the course of one year, it is the equivalent of making one extra payment each year. The fact is making 26 biweekly payments will probably not be any more painful than making 12 monthly payments. For some people, depending on how they are paid, the biweekly schedule actually helps their budgeting ability. Of course, there is a drawback to this payment method. Many banks have caught on to this prepayment method, and, because it does require some extra bookkeeping, they charge users an additional fee.

Overpay the Principal.

Make only one mortgage payment each month, but add some additional money that goes directly to the principal. Some people choose to add a specific amount of money each month, while others add whatever amount they have left over after other expenses are paid. Whichever method works for you will help pay off your mortgage quicker. Talk with your lender before you do this to ensure that they will apply the extra money directly to the principal of the loan.

Pay What You Can When You Can.

This can be the most undisciplined approach to paying off a mortgage early, but it can also be very effective. You may not have available funds each month to pay on the principal, but when you do, use them. Don't worry about not having enough to do this every month.

If you get an income tax refund, an end of the year bonus or any other extra amount of money, send it straight to the bank with a note to apply it to your principal. Many people take this a step further, and go about finding ways to come up with extra money for the sole purpose of applying it to the principal of their mortgage. Have a yard sale, take a second, part time job, or collect all of your change. While it may seem like these methods won’t generate a significant amount of funds, keep in mind that when money is applied directly to the principal of the loan, it can greatly decrease the term of the mortgage as well as the amount of interest paid.

Refinance

When most people consider refinancing their home, they think about lowering their monthly payment. But there is another benefit to refinancing. If interest rates drop and you are making your monthly mortgage payments easily, consider refinancing and shortening the term of your loan. If you originally financed your home for 30 years, and now, with 17 years left on your mortgage, you can refinance it for 15 or even 10 and keep your payment roughly the same, you will save a tremendous amount of interest over the lifetime of the loan. Rather than trying to get your monthly payments as low as possible when interest payments drop, try to shorten the term of the mortgage as much as possible.

These are just some of the methods that you can use to shorten the term of your mortgage and pay it off early. Paying off your mortgage early can free up a tremendous amount of cash, allowing you to change careers, travel or do many other things that would be impossible if you were spending 30 percent or more of your monthly income for a place to live.

Dedicating a decade of your life to working hard and paying down your mortgage can payoff for years to come. If the idea of scrimping and saving makes the process seem like it is not worth it, visit one of the many online calculators available that show you how much money you can save in interest payments simply by paying off your mortgage a few years early.

Lucinda Jones is a freelance writer who writes about the mortgage industry, often focusing on a specific topic such as mortgage rates.