Paying off your mortgage is a great way to start learning how to live debt free. However, most people are stuck in thirty-year mortgages and often will refinance them and end up staying in mortgage debt even longer. Working towards paying off your mortgage earlier is a great choice that can be done if you work hard at it. It may seem like a pretty daunting task, but it can be quite easy to take off years or even decades off of a payment schedule to increase your home's equity and save you a lot of money on interest payments to get your loan paid off earlier. Below are some great tips to put to use in order to pay off your mortgage earlier.
Make Bi-Weekly Payments
One of the easiest ways to save money and pay your mortgage off earlier is by making half-payments every two weeks instead of the full amount once a month. While this may not make a big difference in affecting your monthly budget, it will amount to paying thirteen full payments a year towards your mortgage instead of just twelve. It may not seem like a lot, but over the course of a thirty-year mortgage, the savings could result in tens of thousands of dollars.
Extra Principle Payments
Another great way to pay off your mortgage earlier and save on interest is by paying more principle payments. Many mortgage lenders will allow you to send in extra money each month with your full payment and mark it as "principle only". Paying down the principle of the loan will not only pay your mortgage off quicker, but it can save you a lot in interest in the long run. Even if you add just fifty to one hundred dollars each month towards the principle when you pay your loan, it can really add up more than you would believe.
Refinance To Shorter Term Loan
If you have a thirty-year mortgage, you can refinance your loan into a fifteen-year mortgage to save money, interest and time. A fifteen-year mortgage is not the same as half of a thirty year mortgage. In many cases, you will have a better interest rate and the payments won't be much more than a thirty-year mortgage would be. This is because your interest on a fifteen-year term will keep the payments smaller. If a fifteen-year mortgage offers payments a little too high for you to afford, you can work with your lender to see if you could refinance to a twenty-year mortgage instead.
Get Lower Rate
If you can afford to continue making the payments you are making but can refinance to a lower rate, you will save money on interest payments and be able to pay off your loan quicker. Refinancing to get a better interest rate is sometimes much easier for someone to do than jumping from a thirty-year mortgage to a fifteen-year mortgage. However, it is essential to do a little bit of research before considering a refinance. There could be closing costs that can add up to be a big expense that might not be worth refinancing for if you don't have enough time left on your loan. The new interest rate that you are qualified for needs to be low enough to offset the cost of doing a refinance.