Advice on Paying a Mortgage Off Early
Freedom from a mortgage payment each month can relieve financial stress and increase your disposable income. The average home loan features a 30-year term, but rather than be a slave to your home loan payment for the next three decades, consider alternative payment methods to help reduce the debt faster.
Other People Are Reading
-
Time Frame
-
Although the typical mortgage loan features a 30-year term, you don't have to accept this payment term. Rather, you can request a shorter term to help get rid of the debt faster. Twenty-year and 15-year mortgage terms are available from your mortgage lender; and if you're already living in your property, refinancing and acquiring a shorter loan term pays off the loan early. The downside to a decreased mortgage term is a higher monthly payment.
Considerations
-
Paying on a home loan entails paying off the principal balance and the interest due on the mortgage. Interest is the mortgage lender's fee for providing the funds for the house. Making bi-weekly payments decreases the amount you pay in interest over the life of the loan. Talk with your lender to see if bi-weekly payments are an option.
-
Benefits of Higher Payments
-
Voluntarily increasing your payments is another way to pay off the balance sooner. Let's say you have an additional $300 a month after paying your other bills. Rather than spend this money on unnecessary items, forward an additional principal payment each month for this amount. Write a separate check in this amount and note "principal only" in the check's memo section. This method would reduce the principal balance by an extra $3,600 a year.
Prevention/Solution
-
Realistically, not every homeowner has the extra cash to make higher payments each month. If not, plan ahead and forward an extra mortgage payment once a year. Doing so provides the same results as the bi-weekly mortgage plan and you'll save several thousands of dollars in interest over the life of the mortgage loan, thus reducing the mortgage term.
Expert Insight
-
Take any extra money your receive during the year, such as a tax return, employment bonus check or inheritance, and apply this extra cash to your mortgage principal to help pay off the debt sooner. Do this yearly if you regularly receive a high tax return or bonus.
-
