Paying off your mortgage ahead of schedule will save you some money on your loan’s interest. In fact, if you pay off your mortgage early you can save hundreds or even thousands of dollars.
Many homeowners would like to own their houses outright as soon as possible. Not having to worry about monthly mortgage payments is a huge sigh of relief. Consequently, the idea of paying off a mortgage early is worth exploring for some people. If you’re considering paying off your mortgage ahead of time, use the three tips below to fast track your payments.
1. Reduce Your Expenses
If you are wondering where to find extra money to put towards your mortgage, your list of expenses is the first place to start looking. By reducing your expenses, you might find some room in your monthly budget that can go towards paying down your mortgage faster.
Paying off an extra $100 every month can help you pay your mortgage four years early and save you $23,000 in interest (assuming that you took out a 30-year $250,000 loan at 3.5% APR). We have more information on APR and how it works here. It is important to tell your lender that you want the extra payment to go towards the loan principal.
Start reviewing your debit and credit card expenditures. Find the impulse purchases. Foregoing that fancy coffee once a week can save you $20 per month towards your mortgage, while one less night of takeout could save you anywhere from $60 to $160.
2. Making Scheduled Extra Payments
Many people feel unsure about committing to a higher monthly payment, even though the option of refinancing to a shorter-term loan looks attractive. However, making a scheduled extra payment could yield similar results.
Figure out how many extra payments you would like to make each year. This can be an extra payment each quarter or one extra payment per year. This totally depends upon you. Once you have decided the total dollar amount you want to spend on extra payments each year, you can set up an automatic savings plan at your bank to put away some extra cash into a savings account each month. Hence, when you are ready to make that extra payment, your funds will already be waiting for you.
3. Refinance into a 15-Year Mortgage
Many borrowers go for the 30-year fixed mortgage, which comes with a lower monthly than a 15-year mortgage. However, as incomes and lifestyles change, you may find yourself having more cash to put towards your mortgage. While making the jump from a 30-year mortgage to a 15-year mortgage involves a significant payment increase, you’ll also finish off your loan in roughly half the time. We have additional resources explaining if mortgage refinancing is a good option for you.
Before deciding to refinance your mortgage, be sure to speak with your lender about any closing costs you might incur. Depending on how much the costs are, it may make more sense to increase your monthly payments on your existing mortgage instead of refinancing.
There’s no right or wrong way to pay off your mortgage early, but understanding your options can help you come up with a strategy that suits your budget and lifestyle. The important thing to remember is that small actions can net you big savings.
Start saving now by paying off your mortgage early, get a free rate quote today, and apply for a mortgage refinance with no hidden fees or charges.