Paying off your mortgage is an amazing feeling. It means you own your home outright, without the financial stress of monthly home loan payments. And, paying off your mortgage sooner rather than later will save you money in the long run, because you’re not shelling out for the added interest every month.
How to repay your mortgage earlier than planned? Here are seven easy ways that you can pay off your mortgage sooner.
1. Refinance
If your financial situation has improved since buying your house, and you’re now able to make higher monthly payments, consider switching to a shorter-term mortgage through refinancing. You might refinance from a 30-year loan to a 15-year loan, for example; with higher monthly payments but a shorter mortgage term and potentially a lower interested rate as well. You’ll pay more every month, but also pay off your loan sooner, with less money spent in total.
2. Make a 13th Payment
Even if you don’t have a lot of spare cash lying around, see if you can afford to make just one more monthly payment every year. Many homeowners choose to save a bit of money every month and make a 13th payment on their home loan annually. If you had a $200,000 mortgage, for example, making an extra payment every year could help to shave off around three years of mortgage payments and save you as much as $20,000.
3. Scrimp and Save
If you’re serious about paying off your mortgage sooner, devise a plan of action to save a certain amount of money each month and put it toward making extra mortgage payments. If you’re spending $10 per day on lunch, make a concerted effort to pack a meal instead. By the end of the month you’ll have amassed a good chunk of cash which can be put toward extra home loan payments every quarter or yearly.
4. Consider a Move
While this is a drastic option, there are some situations in which moving into a new property makes financial sense. If you will soon be facing a decrease in monthly income – perhaps due to changing jobs, going back to school or retirement – it could make sense to downsize; using the profits from your larger house to get a shorter, smaller mortgage on a new home or even buy it outright.
5. Pay a Lump Sum
If you unexpectedly come into a sizable sum of money, for instance a bonus at work or a tax refund, put it toward your mortgage. While it’s tempting to spend surprise money or put it toward another investment, keep in mind that paying off your mortgage sooner is actually it’s own investment. If you have a fixed-rate mortgage of $200,000 with an interest rate of 4.5%, paying a lump sum of $10,000 after five years will shave more than two years off your mortgage – and save you a hefty $19,000 or more in interest payments.
6. Check Your Terms
Possibly the most important advice when it comes to shortening the length of your mortgage is to carefully review the terms of your home loan. Are there any penalties or special instructions associated with changing up your payment schedule? Some lenders enforce pre-payment penalties, so you will be required to pay a fee if you pay off your mortgage sooner than the initial life of the loan. Then again, other lenders such as HUECU offer mortgage plans with no pre-payment penalties, so you’re in the clear when it comes to paying off your mortgage sooner.
To learn more about home loans and how you might be able to pay off your mortgage sooner, get in touch with a member of the HUECU mortgage team. They can tell you more about your options and help to advise on what makes the most sense for your unique financial situation.
