How to Pay Off Your Mortgage Early

July 16, 2019 By , , , ,

No one wants to hold on to debt for their entire lives, but in some cases, having a mortgage makes the most financial sense for the time being. As home loan rates continue to stay low, homeowners should evaluate all of their options first.

Should You Pay Off Your Mortgage?

Before you consider paying off low-interest rate debt (such as a home loan) financial advisors recommend getting rid of high-interest debt, or other sizable debt first. It’s also important that you don’t leave yourself in a “cash poor” situation.

What does that mean exactly? Although it’s important to pay off debts you may have, it’s also important to have money in an emergency fund. What if you lost your job, or what if you find yourself in need of a new vehicle? Putting yourself in a financial pinch is the opposite of helpful.

Experts suggest homeowners have three to six months’ worth of expenses saved before attempting to tackle home loan debt. If you’ve got your finances in line, and you’re ready to start chipping away at your mortgage, there are few ways to do this. (Use this mortgage caluclator to learn more.)

You’ll also want to take into consideration that some lenders will only accept extra payments during specific times of the year. You may even face prepayment penalties.

How to Pay Off Your Mortgage Early

Refinance Toward a Shorter-Term Loan

If you currently have a 30-year loan, consider refinancing into a 10 or 15-year loan. Your payments will obviously be higher, but with current low rates, you may end up paying less in the long-run.

Pay a Little Extra Each Month

Are you looking to make small changes over a long period of time? Then paying a little more each month could work for you. Consider how much time you could cut off your loan over time if you skipped the extra cup of coffee or took a sack lunch instead of going out. Every little bit counts!

Make Lump Sum Payments

Are you looking forward to a big quarterly bonus, or maybe a little extra cash in your pocket at the end of the year? Put that toward your mortgage! But don’t forget that any additional funds you put toward your mortgage should be applied toward your principal balance rather than the just the following payment due.

Downsize

This is obviously a more drastic step toward a smaller mortgage, but as time passes, you may realize you don’t need the extra space in your current house. Consider downsizing and using the profits from selling your larger home toward the mortgage on your new house.

Start Bigger

If you’re a first-time homebuyer and you’re contemplating what you can afford, consider the down payment size you’ll be able to make. Although there are loan options with smaller down payment requirements, anything less than 20% will usually require Mortgage Insurance. The additional fee of MI will only add to the amount you pay long-term.

And of course, a larger down payment means you’re paying off less in the future.

Considering a refinance, or possibly buying a new home? We can help with that. Contact a Mortgage Advisor today to learn more!

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