Did you know that mortgages used to be short-term solutions with high down payments? Nowadays, the most common term is a 30-year mortgage.
It’s no wonder that many homeowners are looking for ways to pay off a mortgage faster. There’s more than one solution to quickly getting rid of monthly loan payments, some that you can combine.
Read on to learn five methods that work.
1. Make Payments Biweekly
If your lender accepts biweekly payments, split your monthly mortgage payment in half and send it in twice a month. With this strategy, you will have paid off 13 monthly payments at the end of the year.
If you have a typical 30-year loan, you might shave 4-6 years off of your loan by using this strategy. However, the exact amount will depend on your interest rate.
2. Make an Extra Payment Each Year
Another method to pay off a mortgage quicker is to budget for an extra payment once a year. This is a great option for those who cannot submit biweekly payments because their lender doesn’t allow it.
If you continue to make an extra payment annually, you could shave off up to five years of your repayment term. When you continue to reduce the principal amount owed, your cost of borrowing gets lower.
3. Pay Extra Money Each Month
The key to paying off your mortgage faster is paying extra money in some way. This is why another method to pay off a mortgage early is paying more than the monthly payments each month.
If you struggle to save money for an extra end-of-the-year payment, this is a good option. Before attempting to pay extra per month, ask your lender how they handle payments that exceed the regular monthly charges.
The savings you accumulate will depend on how much extra you pay per month and the terms of the loan.
4. Refinance Your Mortgage
Instead of creating a mortgage budget each month, you can refinance your 30-year home loan to get a shorter term. A shorter loan means you’ll pay higher monthly payments, but less interest over time.
Before refinancing your mortgage, make sure you can afford the new monthly payments. You can refinance your mortgage for another 30-year loan term but this option doesn’t make much sense to pay off a mortgage early.
If you plan on selling your house before paying off the mortgage, you’ll use your home’s equity. Refinancing your mortgage works like this if you use a HELOC.
5. Recast Your Mortgage
If you don’t want to refinance your loan because you want to avoid getting a new mortgage, you can choose to recast instead.
This involves paying a lump sum toward your principal balance so that the bank will adjust your payment terms. Another benefit of this method is that the fees are lower than they would be if you refinance your mortgage.
Pay Off a Mortgage Quicker With These Tips
The most common mortgage loan terms are 15 and 30-year periods which is a long time to make monthly payments and accumulate interest. The average homeowner would rather pay off a mortgage early if they can.
You can use one or more of the tips in this guide to get your mortgage payments down. Only take on what you can afford and you’ll be in good hands!
For more real estate guidance, check out the other posts on our blog.
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