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Five Ways To Pay off Your Mortgage Faster
If you are in a financial position where you are able top pay off your mortgage quickly without sacrificing other aspects of your life, there are a few ways to accomplish this. Seek advice from a trusted mortgage advisor, to see what you can and cannot do. Here are a few of the most popular options.
You can pay off your mortgage quicker by signing up for a biweekly or accelerated mortgage payment program. This will allow you to make 1 extra payment per year and will end up saving you thousands of dollars in mortgage interest while cutting years off of your loan. These programs are most beneficial on a 30 year mortgage and you can cut up to 8 or 9 years off of your loan by getting on a bi-weekly or equity accelerated mortgage program. These programs will not only help you save a lot of money and cut the term of your loan down but they will also help you build equity into your home faster and lower your effective rate.
Payments on Interest Only loans build no equity. One way to help pay off the mortgage quickly is to put the savings from the interest only payments into an bank account or other investment that earns a higher rate of return than your mortgage interest rate.
To pay off your loan quicker you can make extra principal payments on your loan each year. You can do this monthly (which is the most benenficial) or you can do it bi-monthly, once per quarter, every 6 months or just 1 time per year. There are some people who apply their income tax return each year to their mortgage to pay it down and pay it off quicker. Others make extra payments every time their bonus comes in from work each quarter and yet some just make a $25, $50, or $100 extra payment to their mortgage each month so that they will have their home mortgage loan paid off faster.
If you decide to go with a bi-weekly payment make sure to ask when the payment is posted as many mortgage companies will post the payment only after a full payment is submitted.
Just making that one extra payment a year on a 30 year loan can, in most cases take 10 years off the life of the loan.
Making a 13th payment towards principal reduction every year shortens a 30-year fixed rate mortgage by about 5 years. If the monthly payments are set up to include the escrows of homeowner insurance payments and property tax, then depending on the amount of the escrows, the homeowner can pay off a 30-year mortgage even sooner. One should always check the mortgage statements to ensure that the extra payment is applied to pay down the principal, as some banks would to apply the extra payment towards the next payment due and simply not bill the homeowner for the next month.
Refinancing into a 15 year loan will force you to make higher payments, however it will also force you to payoff your house faster.
One of the easiest ways to make an additional payment each year is to make each payment for 1/12 more than your minimum payment amount. In other words if your scheduled principal and interest payment is $1,000, make a payment of $1,083 each month, and request that your mortgage company apply the overpayment directly to your principal. For many families this is much easier to swallow than coming up with an additional $1,000 in one lump sum. The important part is that the end result is paying off your mortgage roughly 8 years faster than if you just made your minimum payment amount.
Applying any tax returns you receive towards your mortgage balance is a great way to quickly pay your loan down.
The most common ways of paying your loan off faster are a lump sum payment or making extra payments. You can also refinance to shorten the length of the loan. Paying the loan off faster can same interest paid on the debt borrowed.
» DISCLAIMER: The information contained in this article on 'Five Ways To Pay off Your Mortgage Faster' is a collection of contributions by licensed mortgage professionals and is not the opinion of Broker Outpost LLC. Always consult a licensed professional before applying for a mortgage.
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