While the terms of your mortgage dictate the maximum amount of time that you have to pay off your mortgage – there is nothing in the terms that say you can’t pay it off early. Here are a few tips that you can follow to help speed up the process and own your home sooner than planned.
Shorten The Loan Term
One of the best ways that you can reduce the amount of time that you are paying on your mortgage is to refinance it to a shorter loan term. The next level is usually 15 years instead of 30 years. While that will have a significant impact on how fast your home is paid off – it will also double the monthly payment that you will be required to make.
Before you look into this option, it is important to make sure that you can afford a double payment every month for the next 15 years. The benefits are great but, if refinancing to a shorter term will put you and your family in financial duress, than they’re not worth it. Investigate this option thoroughly before moving forward.
Get A Lower Rate
Another great option is to look into refinancing your loan at a lower interest rate – while keeping the monthly payment amount the same. This means that more of your monthly payment will go towards the principal amount of the loan – paying it off sooner.
Obviously, the key here is being able to qualify for a lower rate. That means keeping your credit in good standing and making all of your payments on time. Also, it is important to investigate the added costs of refinancing.
If you plan on staying in your home indefinitely, then the added refinancing costs will be worth it because you will recoup a little more of them each month that you make your mortgage payment. However, if you refinance and then move a year later – you will likely lose money with the added refinance expenses.
Cancel Your Mortgage Insurance
If more than 80% of your mortgaged was financed then you are likely paying mortgage insurance. Your lender is required to remove the insurance once the loan-to-value ratio is 78%.
To speed this process up, you can make home improvements and keep an eye on the comparable homes in your neighborhood as they sell. When other homes in your neighborhood sell for more money – that increases your home’s value and changes the loan-to-value ratio.
While the mortgage insurance may seem negligible – once it is removed, you could be paying up to 1% more towards the principal balance of your home loan. That an add up!
Pinch Your Pennies
If you are doing all that you can to make your mortgage payments and refinancing is just not an option – keep an eye on your budget for those one-time payments that land in your checking account.
Things like tax returns, annual bonuses, even gifts or inheritances can all be sent straight to the principal balance of your mortgage loan and will really make a dent.
Make Bigger Payments Every Chance You Get
While you do have a minimum amount that you need to pay towards your mortgage loan each month, your bank is never going to turn away an additional payment or larger payment.
In fact, just by sending an extra $100 a month towards a $150,000 loan you can pay that loan off approximately six years sooner than planned!
One caveat to this, make sure to contact your bank and ask them what the terms are of your loan regarding additional payments. Some banks will hold onto the money and put it all towards the interest. You need to make sure that, if you’re sending extra money on top of your mortgage payment, the money will be applied to the principal balance.