7 Ways To Pay Off Your Mortgage Years Earlier

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Want to pay off your home and run the mortgage contract through the shredder a lot sooner than you planned?

There are many ways to pay off your home loan faster. With the right tactics — like the following ones — you’ll scarcely notice the increase in your monthly payments.

1. Make mortgage payments every two weeks

Most homeowners make 12 monthly mortgage payments per year. But if you make half-sized payments every two weeks, you’ll make 26 half-payments per year — the equivalent of 13 full payments.

Essentially, it is like making 13 monthly payments every year rather than the usual 12.

To go this route, call your lender and ask the best way to do it. Some lenders will set you up with such payments. Or, you might simply prefer to send in the extra payments by mail or electronically. Be aware that some mortgage lenders will hold partial payments until the second half arrives rather than applying it to your account immediately. Others may refuse to accept partial payments altogether. So check with your servicer first.

And if you make any extra payments beyond what is owed each month, be sure to designate it “apply to principal.” Otherwise, the lender may treat it as a prepayment of your next regular monthly payment.

Caution: Avoid paying for “mortgage acceleration” programs. Paying down your mortgage faster should not cost extra.

2. Pour every bit of extra cash into your mortgage

Dedicate every windfall you receive — such as bonuses and gifts — toward your mortgage principal.

It’s possible you’ll find better uses for extra cash than paying down your mortgage, though. For example, if your after-tax mortgage interest rate is 4%, but you can earn 8% on your money in the stock market, you’re probably better off investing.

3. Round up your payments

Get in the habit of rounding up your monthly payment. If it’s $1,013, pay $1,020 or even $1,100.

Do this on a regular basis, and you’ll shave years off your mortgage while feeling little pain. Be sure to let your lender know that the extra amount is designated for your principal.

4. Make one extra payment a year

This is an alternative to making a payment every two weeks. At the end of the year, give yourself a holiday gift by making an extra payment. Heck, do it at any time.

Or, if you’d rather, just add an amount equal to one-twelfth of your mortgage bill to each month’s payment. For instance, with a $1,013 monthly payment, one-twelfth is about $84. So, you’d pay $1,097 monthly instead. Again, designate the additional amount to pay down your principal.

5. Refinance into a shorter loan

Interest rates are generally lower on shorter-term loans than on longer-term loans. So, borrowers choosing shorter terms — such as a 15-year mortgage instead of a 30-year mortgage — can save a great deal of money in the long run, although their monthly payment will likely increase.

6. Refinance and pretend it’s a shorter loan

If locking into a shorter mortgage term with higher monthly payments feels scary, you can get much the same effect by refinancing into a cheaper 30-year mortgage but paying it off on a shorter schedule.

You won’t enjoy the lower rates offered for shorter-term loans, but you’ll still save heaps of money on interest.

This option requires willpower because you’re making a larger payment than you are required to each month. But it gives you the option to fall back to your smaller required payment if you need extra cash.

7. Decide if refinancing is cost-effective

Options 5 and 6 involve refinancing your mortgage. Before considering those options, decide if refinancing is a good move for you.

Whether refinancing is worth it depends on the various associated costs, whether rates are low enough to justify a refinance and how long you’ll stay in the home. To be a good deal, you’ll need to stay long enough to more than recoup those costs.

You can get an idea of your costs using myFICO’s mortgage refinance calculator. You can also visit the Money Talks News Solutions Center to search for the best rates.

Tip: Don’t give lenders consent to pull your credit report until you’re ready to actually apply for a loan. When a lender pulls your credit report, it can temporarily ding your credit score.

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