Thursday , 23 May 2019


Pay Off Your Mortgage Years Earlier & Save $Thousands! Here Are 6 Ways

There are many ways to pay off your home loan faster. With the right tactics — like the following ones — you’ll scarcely notice the increase in your monthly payments.

1. Make mortgage payments every two weeks

Most homeowners make 12 monthly mortgage payments per year but if you make half-sized payments every two weeks, you’ll make 26 half-payments per year — 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 such 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 it as a prepayment of your next regular monthly payment.

According to one calculator, if you have a $200,000 mortgage with a fixed interest rate of 4.5%, making biweekly payments would save $28,037 in interest over the life of the loan and pay off your mortgage in 25.6 years instead of 30. That’s a big bang for not many extra bucks.

Caution: Avoid paying for “mortgage acceleration” programs. Paying down your mortgage faster should not cost extra.

2. Pour every bit of extra cash into your mortgage

Dedicate every windfall you receive — such as bonuses and gifts — toward your mortgage principal.

  • It’s possible, however, that you’ll find better uses for extra cash than paying down your mortgage, though. For example, if your after-tax mortgage interest rate is 4%, but you can earn 5 percent on your money elsewhere, you’re probably better off earning the 5%.

3. Round up your payments

Get in the habit of rounding up your monthly payment. If it’s $1,013, pay $1,020 or even $1,100.

  • Do this on a regular basis, and you’ll shave years off your mortgage while feeling little pain.

4.  Make one extra payment a year

This is an alternative to making a payment every two weeks. At the end of the year, give yourself a holiday gift by making an extra payment. Heck, do it at any time.

  •  If you’d rather, just add an amount equal to one-twelfth of your mortgage payment to each month’s payment. For instance, with a $1,013 monthly payment, one-twelfth is about $84 so you’d pay $1,097 monthly instead.

5. Refinance into a shorter loan

Interest rates are generally lower on shorter-term loans than on longer-term loans so borrowers choosing shorter terms — such as a 15-year mortgage instead of a 30-year mortgage — can save a great deal of money in the long run, although their monthly payment will likely increase.

6. Refinance and pretend it’s a shorter loan

If locking into a shorter mortgage with higher monthly payments feels scary, you can get much the same effect by refinancing into a cheaper 30-year mortgage but paying it off on a shorter schedule. You won’t enjoy the lower rates offered for shorter-term loans, but you’ll still save heaps of money on interest.

  • This option requires willpower, because you’re making a larger payment than you are required to each month but it gives you the option to fall back to your smaller required payment if you need extra cash…
Editor’s note: The above summary* of the original article has been edited ([ ]), restructured and abridged (…) for a faster- and easier – read. Also note that this paragraph must be included in any article re-posting to avoid copyright infringement.

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*The author’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article. Furthermore, the views, conclusions and any recommendations offered in this article are not to be construed as an endorsement of such by the editor.