Most people choose to get a mortgage when buying a home. Over time, though, the interest expense with the mortgage causes homeowners to consider paying their home loan off early to save money.
So in this article, we discuss when and how to pay off your mortgage early to reduce the overall cost of homeownership.
When to Pay Off Your Mortgage Early
The best time to pay off your mortgage off early depends on your financial circumstances. Paying your mortgage off early requires larger or more frequent mortgage payments. So for many homeowners, paying off their mortgage early requires saving money and cutting expenses to have extra money every month to dedicate toward their mortgage.
It may be a good time to consider paying off your mortgage if one or more of these situations apply to you:
- You’re expecting a windfall soon, such as inheritance or selling a business.
- You’ve paid off other existing debts, such as your student loan.
- You’re expecting an increase in your income, such as a promotion or business growth.
- You’re managing your money well, which has resulted in more disposable income.
- You’ve saved up for a rainy-day fund and have more disposable income.
- You have no plans to make a large purchase in the near future.
How to Pay off Your Mortgage Early
Besides paying your mortgage off in a lump sum, there are several things you can do to begin paying off your mortgage early.
Discuss Options with a Mortgage Broker
Perhaps most importantly, discuss paying off your mortgage early with a mortgage broker who can discuss the strategies and options available to you.
Some of the options for paying your mortgage off early may not be allowed under the terms of your home loan or may have a penalty. Furthermore, some strategies, such as refinancing to lower your monthly payment, will have to be executed by a mortgage broker, so it’s best to talk with a mortgage broker about paying off your mortgage early in the process.
Budget to Pay Your Mortgage Early
Planning to pay off your mortgage early typically involves budgeting, so you have the extra funds each month to pay more on your mortgage.
Budgeting to pay off your mortgage early may mean cutting expenses, working to raise your income, or a combination of both.
Splitting Monthly Repayments
Instead of repaying your mortgage in monthly installments, it may be beneficial to pay using bi-weekly or weekly installments instead. This results in more payments over a year due to the number of weeks in a year versus the number of months. For example, if your monthly repayment is $1,500, you can split that into bi-weekly payments of $750.
The result is as follows:
- 12 monthly repayments = 12 x $1,500 = $18,000
- 26 bi-weekly repayments = 26 x $750 = $19,500
Over the year, you’ll be paying an extra $1,500 which equates to an extra monthly payment. This effectively means that you could reduce your mortgage term by several years depending on the mortgage amount.
Before you consider splitting your monthly repayments into weekly or bi-weekly repayments, make sure your lender accepts these repayments without charging an additional fee. If they charge extra, then it may be better to continue with your current repayment plan.
- Should You Be Making Weekly or Bi-Weekly Mortgage Payments
- 3 Reasons to Make Bi-Weekly Mortgage Payments
- Will You Save Money Paying Your Mortgage Weekly?
Don’t Neglect Making Extra Small Payments on Your Mortgage
Extra small payments on your mortgage can go a long way when it comes to reducing interest costs over the life of the loan.
Paying an extra $100 per month on your mortgage can make a big difference and potentially save you thousands of dollars in interest.
Take a look at this additional mortgage payment calculator, and you’ll be surprised how many years you will cut off your mortgage by adding just a little extra to your monthly payment.
Refinancing Your Mortgage
If you have a higher interest rate, you may be able to refinance and apply the savings toward your mortgage, saving thousands of dollars without spending any more per month on your payment.
To see if it makes financial sense to refinance your home, consult a mortgage broker who will lay out all your options.
Marimark Mortgage is based in Tampa, Florida and serves the mortgage needs of the luxury real estate market in Florida, Virginia, and Pennsylvania.
We specialize in conventional home mortgages, FHA, VA, and USDA mortgage options, refinance loans, and reverse mortgages. We’ve worked extensively with cash-out refinancing, and help clients with HARP refinancing to lower their monthly mortgage payments.