How to Pay Off Your Mortgage Early?

paying off your mortgage early pros and cons

Isn’t it so heart-breaking to give house payments every month? About 40% of Americans have succeeded in owning their houses outright. Do you also wish to become one of them? Don’t you worry! We will guide you to become one of those homeowners with no debts in no time. 

How to pay off your mortgage early? This guide will answer this question and help you fully own your house within a short period. 

What Is a Mortgage?

Firstly, let’s learn what a mortgage is. Mortgages are also called “mortgage loans”, and are the most common way to buy a house in the US without having all the needed cash. It is a type of loan through which you buy homes, land, and other real estate.

The borrower, who wishes to buy a house, agrees to pay the lender a fraction of the loan in installments over a specific time. The borrower is obliged to pay an interest rate as well. In a mortgage, the house itself is the collateral for the loan. Your mortgage rates also depend on your qualification and the nature of the product. 

Top 4 Ways to Pay Off Your Mortgage Early:

Probably, you are already aware that adding even a single dollar to your mortgage payments will cause a colossal effect on your principal balance. It means that if you add one extra payment each year, you will be capable of deducting several years off your mortgage plan. 

We have handpicked 4 ways that are efficient enough to help you pay off your mortgage faster and easier:

1.    Make extra mortgage payments regularly:

Instead of making a single house payment for your mortgage loan, you can alternate to making half-sized payments every week. It will eventually result in more than twelve payments each year. It will drastically boost your loan paying rate, and thus you can wholly own your house soon. 

To be brief, if you pay $1000 for your monthly mortgage payment, you could pay $500 every week through this plan. These payments will affect your budget in the same way as making a payment each month. However, you will be able to pay to make one additional payment each year. It’s because there are 52 weeks in a year, so paying with a biweekly payment schedule will allow you to pay 13 payments instead of the regular 12 payments. 

Here is how the biweekly payment schedule looks when considering real-life numbers.

If you are on a 30-year $200,000 mortgage with a 5% interest rate, then you’ll be able to save $34,328 in interest. 

It saves you from paying several additional mortgage payments. Furthermore, it helps you pay off all the mortgage within five years only. 

2.    Send extra money for the principal each month:

When sending monthly mortgage payments to the lender, consider sending extra payment for the principal. Such a payment is ONLY for the principal, meaning it pays the principal only rather than principal and loan interest. Keep in mind that, even making a small-scale “for principal only” payment, you can easily get away with a hefty sum of interest charges. Therefore, you will succeed in paying off the mortgage years ahead of the original plan. 

For example, if you have an odd monthly payment such as $1056, you can round it off and pay $1100 every month. The lender will add this extra bit of money to your principal payment. 

Even if it’s an insignificant amount of money, it would add and make a noticeable amount of money over the years. And help you reach your end goal. 

3.    Refinance your mortgage into a short-term plan:

Are you on a 30-year mortgage? Consider refinancing it to a 15-year loan. It is because you will be able to pass through the mortgage process quickly and conveniently. In addition, you’ll also get a loan with a lower interest rate because it is common in short-term loans. In this way, you will pay a lot less than the original 30-year plan. Surprisingly, the monthly payments for a 15-year mortgage are not double the 30-year mortgage payments; they are prominently less. 

Go on a mortgage payoff calculator and find how much you have to pay for a 15-year refinance. And in case if the monthly house payment is more than what you can afford, consider switching to a 20-year refinance. 

4.    Downsize:

Consider downsizing your house. It would be a strong step that would drastically help you in paying off your mortgage faster. You could sell your bigger house and use profits to buy a smaller house. This whole plan would crush your mortgage extremely fast!

The profits from the bigger house would aid you in buying a smaller house completely. But even if you still have got a small mortgage, you can conveniently pay it off within a short period. It is because having a smaller goal is naturally easier to fulfill.