Pay Off Your Mortgage Early: Four Simple Ways

four simple ways to pay off your mortgage early

Your home is likely to be one of the most expensive purchases you’ll ever make in your lifetime. So, it’s no surprise that you dream of the day when you finally complete all your monthly mortgage payments. But if you have extra money, should you proceed and pay off the loan in advance? Maybe. Here are four simple ways to pay off your mortgage early.

Can You Pay a Home Mortgage Loan Early?

Since mortgages are usually large loans that last for decades or longer, repaying the loan earlier can save you thousands of dollars in interest.

When you send your monthly check to the mortgage lending company, the lender divides the payment into principal and interest. Therefore, in the beginning, the loan payment is used as interest while the remaining installments are paid as the principal. This process is referred to as amortization because it allows the lender to get most of the funds back in the first few years of the agreement.

Four Simple Ways To Pay Off Your Mortgage Early

Here are the four simple ways to pay off your mortgage early.

1. Create Room in Your Budget

One of the best approaches for completing the loan process is paying more than the fixed monthly installments. This step may seem self-evident; nonetheless, you’ll be surprised how far a little extra cash can go.

For example, suppose you took out a $250,000 30-year fixed-rate loan with a 5% annual percentage rate (APR) and had 25 years left on the loan. That would certainly suggest you owe $1,342.05 per month. Then, consider adding just $20 to each repayment at this time. By doing that, you’d save $5,722 in interest by reducing the payment period by eight months. For more clarity and accuracy, you can use a mortgage calculator to assist you with the calculations.

four simple ways to pay off your mortgage early

2. Schedule Extra Payments

You may or may not raise extra money for additional monthly payments. However, some of these extra payment strategies might be more effective over the course of the year.

You may receive an annual job bonus or a tax refund in April. So, if you apply $1,200 each year to the identical mortgage example as previously, your loan will be three years shorter, and you will save more than $25,000 in interest.

If you decide to pay for an extra mortgage, please consult your lender to see if the additional funds will be included in the loan principal. If you don’t designate how these payments will be used, the lender will most likely use them to pay off the interest charges on your mortgage loan.

3. Recast Your Mortgage

You may be familiar with refinancing, but mortgage recasting is a term you may not be familiar with. When recasting, you are paying a significant amount toward the principal balance. Therefore, refinancing usually requires 5,000 dollars for modifying the loan agreement and then, the lender restructures the loan to reflect the new balance.

Also, you can use the credit check to solve several problems. First, it will lower your monthly payment and save you money on interest throughout the course of the loan. You can also pay off your mortgage early if you use these savings to pay major monthly costs.

The home mortgage recasting process includes various charges.

Additionally, Keep in mind that not all house mortgages, including those insured by the Federal Housing Administration (FHA) and those guaranteed by the United States Department of Veterans Affairs (VA), can be amended.

4. Bi-weekly payments

One way to prepay a mortgage without additional payments is to split the monthly payment into two small settlements and then pay biweekly.

How it works:

The majority of mortgages involve monthly payments or 12 annual payments. However, if you switch to a two-week payment, you will end up paying just 26 times a year; there is indeed an additional charge. It not only expedites payments but also saves you money throughout the course of the loan.

Do you want to know how effective this strategy is? For example, if you have a $250,000 30-year fixed-rate mortgage with a 3.5 percent interest rate, you can pay off your mortgage four years early and save over $20,000 in interest.

Not all lenders allow repayment every two weeks, although many lenders do. Moreover, if you want to switch to this payment method, contact your lender and make sure that he will charge no fees.

All in all, these are four simple ways to pay off your mortgage early. For more details, contact us at ratechecker.com.

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