Does paying off your mortgage early sound too good to be true? There are a few paths that many homeowners take to pay off their mortgage. Here are a few tips that you might want to consider.
Make an extra principal payment every year. By making one extra principal payment every year you can cut several years off your mortgage. Some people use tax refunds or bonuses to make that extra payment. Make sure you mark the extra payment to be applied to your mortgage principal balance.
Pay a little extra each month. If you can’t afford to make a big lump sum payment, consider paying a little extra every month. I frequently tell clients to round up their payment to the nearest $100 or maybe add an extra $50-100 every month. Depending on your payment and how much you pay extra, you may cut 5-6 years off your loan. Make sure you mark the extra payment to go towards your principal balance.
Refinance to a shorter term. Depending on your interest rate and what you can afford, some people choose to refinance to a 15 year loan – or even a 20 year loan. Remember if you do refinance, there are closing costs and it can increase your mortgage amount. Talk with your loan officer to see what makes the most sense. Refinancing to a 10 or 15 year loan will save you thousand’s in interest payments.
Refinance to a lower interest rate. If you have locked into a higher interest rate, it may make sense to refinance to a lower rate. This can lower your monthly payment and help you pay off the loan early. If you continue to make the same payments you were making, it will save you money over the life of the loan. Maybe your payment dropped by $200/month with a refinance – now keep paying that $200 as an extra principal payment and you can pay off your loan much earlier.
If you aren’t sure what makes the most sense for you, talk to your loan officer or even a financial planner. We are here to help you with your mortgage, I’m always happy to answer questions if someone isn’t sure of the best plan.
Leslie Vanderwerf, NMLS ID#335509, CrossCountry Mortgage LLC, An Equal Housing Lender, NMLS#3029 – Email – Website
