Owning a home can be a rewarding experience, but looking at 30 years of payments can seem exhausting and like you will never get it done. When you consider how much of that payment you pay in interest to the bank, it can seem like such a waste. Many homeowners want to take a look at how to pay off their mortgage early.
The good news is that there are steps you can take to help pay your mortgage off early. Using one or more of these will help cut months, and even years, off the length of your mortgage and can help you keep that money in your pocket instead.
1. Make Extra Principal Payments
Another way that you can work to pay off the loan on your home faster is to pay extra any time that you can. Most mortgage loans that were issued after Jan. 10, 2014 will not charge penalties for paying them off early. This means that you can make a large lump sum payment or you can just add a few dollars to your mortgage each month, without a penalty.
Even a small amount will help you get the mortgage paid off faster. You could use a bonus from work, your tax return, or find a way to add a bit each month out of your paycheck. Whether you choose to do a lump sum payment to make this work or you just add a little extra to the monthly payment, it will make a big difference.
Let’s say that you have a home loan of $300,000. You took out a 30-year term and the interest is 4%. You would pay $492,500 over the 30-years of the loan if you made the minimum payments, lots of interest for the bank to enjoy. If you add $250 per month to the payment, you could shave off 7 years from the term and save a lot of interest.
See what you are able to afford to pay extra and run the numbers with the terms of your mortgage loan. If you can make a big payment to the loan, at least a few times during your term, it can really add up and will help you get ahead. Each loan is different, but the more that you can put to the principal each month, the faster you will pay it off.
2. Consider Bi-Weekly Payments
This is a painless way to get your loan paid off faster than before. To do it, you simply pay half of your mortgage payment every other week, rather than doing the full amount once a month. This will lead you to paying one extra time each year. That 13th payment can really make a difference and can shave several years off your loan.
This is not something that you can do just on your own. You will need to contact the bank and see whether they will accept an extra payment or not. Some are fine with it and others will not. This is a painless way for you to get a little extra money off the loan, without breaking the bank.
Even if your bank does not allow for you to switch over to bi-weekly payments, you can consider doing a lump-sum payment. You would just need to save up the amount of a regular payment throughout the year and then pay it to the bank at the end of the year, or whenever it works for you.
3. Recast Your Mortgage
A mortgage recasting is going to be slightly different than the refinancing option because it allows you to keep using the existing loan on the property. With this one, you will make a large lump sum to the principal. The bank will then adjust the payoff schedule to help reflect that new balance, giving you a shorter term on the loan.
One benefit of doing this is that the fees for recasting are often lower than what you would pay for refinancing. Typically these fees are only a few hundred dollars, while most refinancing would be a few thousand or more.
This can also be beneficial if you have a low interest rate on your property and do not want to lose that when you make changes. For those homeowners who have higher interest rates, it may be better to go with refinancing to see whether you could lower the interest rate and make it more affordable.
You will need to check with your original lender to see whether this is an option. Some banks are happy to do this and work with you, while some companies will not be set up to do this for you at all.
4. Consider a VA Cash Out Refinance
A refinance can be a great way for you to pay off your mortgage a little earlier and save a lot of money. If interest rates have dropped since you purchased the home, you may be able to refinance and make the loan work out better for you.
With the cash out refinance, you will be able to shorten your loan length, which helps you to cut down on the amount of time that you will have to pay off the loan. You can claim a lower interest rate to help keep the payment as low as possible. And you can take out cash that will help you to make home improvements or pay off debt.
A VA cash out refinance is one of the best choices. For those who qualify, the interest rates are lower, you won’t have to pay a down payment, and closing costs are affordable, which makes this a much better option than some of the other cash out refinance options To know more in detail check out VA refinance article on themortgagereports.com
5. Getting That Mortgage Paid Off Early
There are many reasons homeowners will choose to pay their mortgage off as early as possible. By following some of the tips above, you will be able to get that mortgage paid off and can use your money to reach other financial goals.