The Top Mortgage Acceleration Payoff Methods
Having a mortgage payment eats a large portion of your take-home wages. Many people strive to pay off their mortgages, especially if they are close to retirement and will experience a decline in income. It's not always simple, though. Many mortgages take decades to pay off, and the interest portion can be a hefty expense. However, there are ways to accelerate the payoff so that your loan balance can be eliminated sooner than you had planned.
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Extra Payments
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Making extra payments toward your mortgage balance helps you accelerate its payoff. Mortgages usually are paid once a month, which equals 12 times per year. If you make half a payment every two weeks instead, then you will send a total of 26 checks, which is equivalent to paying one extra payment a year. Instead, you can make one extra full payment per year. If you do not have enough money to make an additional lump-sum payment, you can send more than the amount due each month by adding one-twelfth of one payment for a year as an alternate method.
Shorter Term
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When you apply for a loan, you are assessed on your ability to pay the monthly amount due with the current interest rate. If you pay the mortgage over a longer period, or term, your monthly payments decrease but the total amount of interest over the life of the loan increases. A common term for mortgages is 30 years. If you refinance the loan to a 15-year term without taking out equity and adding to the balance, you will pay off your loan sooner and spend less on the total interest overall.
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Mortgage Accelerator Software
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Specialized systems of paying off your loan faster are known as mortgage accelerator programs. The process uses software that helps you make the right payment amount to eliminate your mortgage in a shorter period than the term on your note. Most mortgage accelerator programs use home equity lines of credit to accomplish the early payoff. The key is paying your mortgage in the beginning of the month with as much of your income as possible, then covering your monthly bills from your HELOC account. The algorithm for the process is complex, but the software, which is available through various retailers online, tells you how much to use of your HELOC that you will pay back the next month. This system will not work if you spend more than you make every month.
Increase Principle Payments
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Increasing payments to your principle balance pays down your loan faster, especially because most of your payment is used toward the interest amount in the first years of your mortgage. You do not have to send much to slowly accelerate your payoff. If you send $50 to $200 each month, you will reduce the term of your loan by a few years or more. Send in your extra principle payment at the same time as your regular one, but write a separate check for it and place "Apply to Principle Balance" in the memo line. Keep track of how much you dedicate to the principle to ensure your lender's proper accounting of the money.
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References
- David Podgursky – Boynton Beach Realtor: Acceleration Programs to be Debt Free
- Mortgage Minder: Taking the Mystery Out of Mortgage Acceleration
- California Real Estate Finance: How Does A 30 or 15 Year Fixed Rate Mortgage Work?
- MSN Money: A New Way to Pay Off Your House
- Colorado Mortgage Banking: How to Accelerate Your Mortgage Payoff
- Mortgage Calculator: Savings from an Early Payoff
