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Ways to pay off your mortgage early
Most people want to get out from under a morgage as fast as possible. But how to pull it off? What follows is a list of methods that can be used to pay off your mortgage early.
Pay off your mortgage early by refinancing
If you are only a few years into a thirty year mortgage you may want to consider refinancing to a shorter term, such as a fifteen or ten-year amortization. Not only will you pay off your mortgage faster, but the total amount of interest you pay will be reduced greatly. In addition, mortgage rates are at historic lows right now, so you may be able to get a lower interest rate as well. When refinancing, the biggest thing to watch out for is closing costs. I have seen closing costs that are so high that they negate any savings, so be watchful.
Add to the monthly payment
Just paying an extra $25, $50 or $100 each month can knock years off your mortgage. Consider this example: You purchase a home for $200,000 and put down 20% ($40,000), which leaves you with a mortgage of $160,000. Using the mortgage calculator at Bankrate.com, a 30 year, $160,000 mortgage will yield monthly payments of $858.91. However, if you bump the monthly payments up to $875, you will knock 14 months of the term of the loan. And if you increased your monthly payments to $900, the term of the loan will be reduced by 35 months. Finally, if you increased your monthly payment by$100 to $958.91, your loan term would be reduced by 74 months, or just over 6 years.
Switch to bi-weekly payments
This is an easy method. Instead of making a monthly payment, make a payment of ½ the monthly payment value, but make that payment every other week. By doing this you will make an extra one month’s worth of payments each year. Using the example from above, you will pay off the mortgage a full five years early, saving nearly $50,000 in interest over the course of the loan. If you decide to use this method, be sure that your lender applies the payments to the loan as they are received. Some lenders hold the first ½ payment until they receive the second, thus negating some of the advantages of this method.
Make large yearly payments
If you receive a yearly bonus from your employer, just put it toward your mortgage. You can do the same if you receive a large income tax refund. These large, one time payments can really help with an early mortgage pay off, and your budget probably won’t miss the extra money paid out.
Give up your raise
This is another one that is fairly simple. Each time you receive a raise from your employer, increase your monthly payment by the amount of the raise. In most cases, you won’t miss the extra money put toward the early mortgage pay off.
I hope you have enjoyed this hub. If you enjoyed this article, be sure to read my article “Should you pay off your mortgage early?” .