Posted by Jaymie Tarshis on 10:04 AM with No comments
Having high debt is out and paying off your debt is in. Mortgage interest rates have gone up quite significantly over the last year so refinancing isn't as much of an option as it once used to be. After the housing crisis a few years ago, more and more people want the added security of owning their home free and clear but that's easier said than done.
Many loan officers and financial advisers recommend paying off your mortgage as fast as possible and there a few methods to go about doing so. From paying more monthly to making extra payments in a year, you'll find many benefits to paying off your mortgage sooner.
Below are a four methods that will help you pay your mortgage off quicker, as you read ahead try to decide what option will be best for your financial situation.
PAY A LITTLE MORE
Before doing anything, ensure that there is no prepayment penalties on your loan. Most 30-year fixed loan do not have a prepayment penalty, but double check with your lender or servicer before taking any action.
The easiest and most obvious solution to paying off your mortgage faster is to pay more. By using a mortgage calculator you can test how adding a little bit to your principal payment can shorten the length of time to pay off your loan.
Not only does paying more on your mortgage shorten the length of your loan, but it also increases the amount of money going to your principal payment which reduces your interest paid as well.
If adding $50 or $100 a month isn't a viable option for your at the moment, try rounding your payment amount up. If your payment equals $752 a month, round it up and pay $760 instead. Even that extra $8 a month can make a huge difference on a $200,000 loan and save you up to 5 or 6 payments total.
Make sure when paying extra towards your mortgage that the money is going towards the principal balance and not just set aside for the next month's payment.
USE YOUR TAX REFUND
One of the biggest perks to being a homeowner is the interest credit you receive when filing your next year's taxes. Even though this only happens once a year, your tax refund could amount to almost a whole month's payment, if not more.
By doing this once year, your loan term will actually shorten from 30 years to closer to 25. The amount of interest you will end up paying will be quite a bit lower as well.
ALTER YOUR TERM
A sure set way that will require you to pay off your mortgage faster is by refinancing into a shorter loan term. You can refinance into a 10, 15, or 20 year mortgage and shorten your loan by up to 20 years. A shorter loan term comes with a higher payment, but check with your loan officer because it may not be as high as you think.
One advantage of refinancing to a 15-year loan is that it commits you paying more on your mortgage. There's no option to decide whether you want to pay more or not this month. In the end, your mortgage will be paid off 15 years sooner, giving you financial freedom at a much faster rate.
If you can't commit to a shorter term, stick with a 30-year loan but just make payments as if you have a 15 or 20 year loan. This way you're in control of your payments, not the bank. RANLife's mortgage calculator let's you change the loan term to help you figure out what type of term and payment option is best for you.
SWITCH TO BIWEEKLY PAYMENTS
Considering there are 52 weeks in a year, if you made a payment every other week you'll end up making a total of 26 half payments, or 13 full monthly mortgage payments at the end of the year.
That extra annual payment can shop off your loan by about six years and save you thousands upon thousands of dollars in loan interest. You can set up biweekly payments automatically or you can control and pay them on your own time.
Make sure when setting it up to request having the extra payments credited towards the principal balance so you can save more on interest expenses.
As you can see, there are quite a few methods that will help you quickly pay down your mortgage. It's a matter of deciding what is the best option for you and your financial situation. Once you decide, stick with it because the rewards of paying down your mortgage in a shorter amount of time are endless.