How to Pay Off Mortgage Early and Wisely

Depending on what source you read, paying off your mortgage early may or may not be a wise financial choice. Just Google “pay off mortgage early” and see the results you get. Every expert seems to have their own opinion based on their own facts, but ultimately it is difficult to make a blanket statement as each person’s situation is different. If you are interested in how to pay off your mortgage early, hopefully you have read both sides of the argument to consider the pros and cons. After that, if you feel that reducing your mortgage term is in your best interest, there are a few ways to go about doing so.

Difficulty: Easy

Instructions

1. The first step in almost any financial plan is to figure out your goals. Is there a certain timeframe in which you would like to have your mortgage paid off by? Maybe just before your oldest child starts college or before you plan to retire? Ultimately, a goal like this may not be obtainable if the timeline is too aggressive, but it is an important place to start to determine what exactly you want to accomplish. From there, the goal can be modified based on what is more realistic.

2. The second step in your plan is determining your ability to pay more towards your loan. This step is where you may need to refine your goal from step 1 to have realistic expectations. Sit down with your monthly budget to see how much extra cash you have to apply towards paying down your mortgage. You may even find an expenditure you could do without - this cash could be redirected towards paying off your mortgage early.

3. Once you have determined your goals and abilities, there are a few ways of how to pay off your mortgage early. You could include an extra check each month with your mortgage payment that can be applied to your principal or you could write a larger check once a year (maybe after a bonus). Before you do either, be sure to call your mortgage company to find out how to make such payments without incurring any fees. It is also important to make sure that your payments are applied to the principal – again, talk to your mortgage company and monitor your statements.

4. Another option is to set up a separate savings account to ultimately pay off your mortgage in one lump sum. The benefits of this method is that you can earn interest on your savings and have the money available in case of an emergency. The downfall is that you may be tempted to spend the money on something else.

5. Ultimately, the best way to pay off your mortgage early depends on your level of discipline. If you have a difficult time not spending money that is sitting in your account, then make an extra monthly payment is probably best. If you would like to maintain some liquidity due to future uncertainties, then set aside a separate savings account and only apply it to your mortgage as you feel comfortable. Either way, commit to a plan and stick to it and remind yourself of the long-term financial benefits you are trying to move towards.

Tips & Warnings

• Always check with your mortgage loan company before sending an extra payment.
• Be sure you have an emergency fund before trying to pay off mortgage.
• Watch out for unexpected fees.

[lifeengineer]

on 5/20/2009 Very well writen article on paying off a mortgage early. I agree paying off debt is a great idea.