6 Painless Ways to Pay Off Your Mortgage Years Earlier

By Money Talks News

Chances are your home mortgage is the largest debt you’ll ever have. How would you like to pay it off and run your mortgage contract through the shredder a lot faster than the 30 years for which most homeowners sign up?

Let’s consider some ways to painlessly pay off your home loan sooner. You can choose to do it a little faster or a lot. In some cases, you’ll scarcely notice the added expense.

1. Make biweekly mortgage payments

Since there are 12 months in a year, homeowners make 12 monthly mortgage payments. But if you make half-sized payments every two weeks (biweekly), you’ll make 26 half-payments, the equivalent of 13 full payments.

Essentially, it is like making 13 monthly payments every year rather than the usual 12.

To go this route, call your lender and ask the best way to do it. Some lenders will set you up with biweekly payments. Or you might simply prefer to send in the extra payments by mail or electronically. Whenever you make any extra payment, however, be sure to designate it “apply to principal.” Otherwise, the lender may treat the extra as a prepayment of your next regular monthly payment.
Use a calculator like this one from the Mortgage Professor to see your savings. For example, according to this calculator, if you have a 30-year fixed-rate mortgage at 3.8 percent, making biweekly payments would save $20,573 in interest over the life of the loan and pay off your mortgage four years earlier. That’s a big bang for not many extra bucks.

One thing to avoid: “mortgage acceleration” products and plans. Paying down your mortgage is an easy thing to do, and you shouldn’t have to pay anything to do it. No expertise or pipeline to a higher authority is required. When you see ads and pitches for mortgage “acceleration” plans, programs and products, run the other direction. (Learn more about these gimmicks here.)

2. Pour every bit of extra cash into your mortgage

Dedicate every windfall – a bonus, raise, or holiday or graduation gift – you receive toward paying down debt. Obviously, the highest-interest debt takes priority. But if you have an adequate emergency savings fund and your mortgage is your only debt, don’t even ask yourself what you’ll do with extra money when it falls into your hands: Add it to your mortgage payment, designating it as additional principal.
It’s possible you’ll find better uses for extra cash than paying down your mortgage. For example, if your mortgage rate is 3.8 percent, but you can earn 5 percent on your money elsewhere, you’re obviously going to be better off earning the 5 percent. Read Stacy’s discussion about the pros and cons of using extra cash to pay down your mortgage.

3. Round up your payments

The monthly payment on a $200,000 mortgage at 3.8 percent fixed over 30 years is about $932 a month. Get into the habit of rounding up that …read more

Read more here: 6 Painless Ways to Pay Off Your Mortgage Years Earlier

Category: economy, money, mortgage, personal finance

Leave a Reply

%d bloggers like this: