The decision to tackle your mortgage debt early is hard and requires willpower. But for those who have already paid off other debts, like their student loan or car loan, it makes sense to pay off their house loan in advance.
Doing so can save you thousands of dollars on interest while letting you reach financial freedom faster. So if you have the extra money to spare, consider using the following methods to build your equity and trim months to years of debt.
1. Refinance to a 15-year – or a shorter term – loan
A straightforward way to pay your loan faster is to refinance to a shorter term loan. For example, if you’re currently on a standard 30-year mortgage, you can refinance to a 15-year loan to be debt free, twice as quickly.
Shorter term loans typically have lower interest rates, so by switching to a 15-year plan, you’ll save up to several hundred thousand dollars.
The downside is that monthly payments are higher, and depending on your income, you may or may not be able to afford this pricing plan.
If a 15-year pricing plan doesn’t work for you for that reason, then an in-between 20-year mortgage plan might be what you’re looking for.
2. Cash Windfalls
Whether your new cash windfall is from a tax refund, a gift, or an inheritance, it can be put to great use by using it to pay the principal of your loan.
For every windfall, all of your subsequent payments will be more effective because your interest payments for every month will be lower.
3. Extra monthly payments
Adding a small extra payment to your monthly obligations can make a big difference in the long run.
Let’s say, for example, that you’re paying $1,250 per month for a $230,000 loan at an interest rate of 5%. If you add $50 to that amount and pay $1,300, your 30-year mortgage will become a 27-year mortgage, and you’ll save $21,000 on interest.
And that’s with just a $50 monthly bump. Imagine the savings if you paid $100 or more instead.
4. Adopt a biweekly payment schedule
A biweekly payment schedule is a fancy way to pay thirteen months a year instead of the usual twelve. The schedule consists of making a half payment every other week, resulting in thirteen full payments by the end of the year.
An extra payment might not look like much at first glance, but it’ll cut up to $40,000 of interest on a $230,000 loan.
Paying off your mortgage loan faster may not require that difficult or complex of an approach as one might imagine. Small monthly payment changes, tailored to your needs, can save you months and thousands of dollars. Need professional help? Chat with us!