How to Pay off Your Home Loan 10 Years Earlier
90Take an Interest in Where Your Money Goes
Are you tired of writing a mortgage check for your real estate every month? Does it bother you to think about all the interest you're paying? Everybody knows you get to deduct mortgage interest from your income taxes, but unless you're in a 100% tax bracket (and nobody is) it's more money out of your pocket than the tax break you get -- a lot more. One solution is to pay your real estate mortgage off early.
This is not necessarily, however, as clear-cut as it sounds. Before deciding to pay your mortgage off early, you need to check with your lender to be sure there aren't any penalties for early payment. If there are, you should probably stick with paying your loan back as specified. If not, try these three easy ideas to shave some significant time off your loan repayment plan.
#1. Pay Extra Every Month.
Adding as little as 10% to each of your monthly payments can shave approximately ten years off a 30-year loan and, for a $200,000 home loan, save you as much as $150,000 in monthly payments over the life of the loan. That's pretty impressive. Some mortgage companies will automatically and routinely apply the extra amount to principal, and others will not. Call and ask. If yours is one that does not handle it automatically to reduce the principal, you will need to write two checks every month. One should cover your regular mortgage amount. The other, for the extra ten percent, should be marked, "APPLY TO PRINCIPAL." This ensures that the additional money you're sending doesn't simply go towards your next scheduled payment but is used to pay down the principal of the loan.
#2. Pay Half Your Mortgage Every Other Week.
Since there are 52 weeks in a year, you'll end up making 26 payments every year--that's an extra month's worth of mortgage payments. Some refinancing programs offer to automatically set up biweekly payments for you, but if you have the discipline to do it yourself, you'll save yourself a lot of extra money in finance fees.
#3. Use Bonuses and Extra Income to Pay Towards Your Mortgage.
Get a nice bonus from your employer at Christmas? Send it to your mortgage company with a note asking them to apply it to the principal of your loan. Hold a successful garage sale that netted $300? Send it to your mortgage company. Work a lot of overtime this month? You know what to do with the extra money. Any time you can pay extra on the principal, you'll shorten the life of the loan and benefit financially.
Paying off your real estate mortgage early takes some commitment and sometimes some sacrifices, but it can save you thousands of dollars in interest. The sooner you own your home free and clear, the better off you'll be financially.
- Boulder real estate
Joel recommends Automated Homefinder to instantly search for Boulder real estate from a database of over 45,000 Colorado homes. 250,000 pictures, virtual home tours, market statistics & more are also available.
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Comments
Another great article! The thought of paying more than I have to makes me cringe a little but you're very right to point out that in the long term, it can only be benefic. I'll definitely try to apply these very useful tips for my loan.
This is another insightful information to me. I try to give whatever extra money I can towards my mortgage. Some months I can give more than others and some none at all. Every little bit does help out though. Things are kind of tight when trying to pay off a mortgage and there are costly repairs that have to be done too.
fantastic! having jsut bought my first house this is extremely helpful information to have! - Can you really save almost 150k by paying an extra 10% each month? * thumbs up *
> You bet! I won't get all math-y on you but if you want to walk it through a good online mortgage calculator it will astonish you. That's real money! And if you discipline yourself to really do it (and that's the rub for most folks) then for sure * thumbs up * to you!
Thanks so much for the tip!! I'm really going to try this. I'm going to do my best now to be as disciplined as you, because I really need my mortgage paid off sooner!!
How true this article is. I regret that I did not start early when I got my first mortgage paying extra. I could have paid $50 a month extra and had it payed off in 15 years instead of 30. I am not making that mistake this time. I figured the payments for 15 years and pay at least that much every month.
Hats off to the three simple and smart ways to pay your loans earlier . But I think being a legal expert in this matter, you can add fourth dimention to it. Utilising the power of time. As you know in the time of recession like this one can apply for loan modification by explaning his hardship to the lender using proper channel. I think that makes your fourth option even better to help people pay their loan much easier and faster. But you know that would make them take another loan :-)
Hey, thanks for the expert opinion and validation -- and for etending the idea to the circumstances of the times, which have gotten more austere since this article was written. It's even more important to watch our finances carefully, and that includes having the best loan arrangement possible. Whether or not a new loan is involved, the wisdom of working with the lender is unassailable -- and paying if off sooner is a way of "using the power of time" as well. More weapons in the arsenal, and different people will find different ones best for them. Thanks again for the perspective.
All great advice Joel, thanks for the tips!
Just a note to clarify -- when "Loan Modification" made his comment and said "I think being a legal expert in this matter..." he was referring to himself, not me. I am not a legal expert. I am of legal age; that's about all I can say in that regard :-)
For more news on Obama bailout. you can try to visit http://www.obama-bailout.us/ website. I do hope that the current plan will help to lessen up the economic crisis.
Can you pay off your home mortgage earlier when you get your taxes and apply that towards your principal at the end of every year?
Marcy - Absolutely! Any extra payments you apply toward principal will help pay off your mortgage much earlier.
What if you did an extra 20% on each payment? How would that effect your loan?
Good question Jenn!
Depending on the interest rate, 20% extra payments - if paid every month until paid off would likely drop a 30 year mortgage down to about 17 years. If you knew you could commit to 20% extra, you'd actually be better off going with a 15 year loan, because you'd get a cheaper interest rate, and your total payment would only be about 20 percent higher than if you went with a 30 year loan.
The savings in interest could very well be in the hundreds of thousands of dollars. (Yes - you could EASILY save hundreds of thousands of dollars in payments!)
Thank you for getting back to me. I wanted a very small payment incase of an emergency. Jobs are hard to come by and I wanted to know that no matter what I could make my house payments. So, right now I could do 20%, but if something were to happen to my job, health, etc. then I might not be able to. I hate to think I am throwing away money though! my interest rate is pretty low, 5%. Can you tell me how to do the math for my savings? Thanks!!!
Some banks impose a penalty for early redemption of mortgage, better check before paying off the loan
curtangel says:
2 years ago
That idea about paying the half of the mortgage payment every other week is brilliant! I get paid bi-weekly so that would work out perfectly. And it's like paying an extra month over the course of a year? I'll have to look into doing that.