Paying off your mortgage early can save you thousands in interest payments; however, this should not come at the expense of meeting other financial goals like savings for emergencies or paying down high-interest debts.
There are various strategies available to you for early mortgage payoff, including making extra payments, increasing monthly payments or refinancing. Learn more about each strategy to determine whether it works for you.
If you need a fast-closing emergency mortgage, be sure tо consult with a lender who specializes іn these types оf loans.
1. Make Extra Payments
One of the easiest and fastest ways to pay off your mortgage faster is through making extra payments. You can do this either by adding an additional payment each month (be sure to notify your lender that it should go toward principal) or making one lump sum payment.
These additional payments will reduce your interest rate and shorten the length of your loan by years, but before making large cash investments it's important to carefully consider other financial goals as well. It might be more advantageous for you to save for emergencies, pay down credit card debt or invest in retirement instead.
If you are planning to make a lump-sum payment, be sure to examine your mortgage paperwork for any prepayment penalties that could add up quickly. These fees typically represent a percentage of your outstanding principal balance and can quickly add up over time. To calculate potential savings with lump-sum payments use our free mortgage calculator!
2. Increase Your Monthly Payment
Paying extra each month can add up and shorten the term of your mortgage significantly, saving thousands in interest over time and becoming a homeowner sooner. By making even just one extra monthly payment or two you could potentially become debt free much sooner!
Your options also include using any lump sum payments such as work bonuses, tax refunds or inheritance as principal payments - just be sure to inform your lender accordingly as the funds could end up going toward future monthly payments instead.
However, early mortgage repayment should never come at the expense of other financial goals, like saving for emergencies or increasing 401k matching contributions or retirement contributions. Always consult a financial planner and your overall budget when making major financial changes and be mindful of any prepayment penalties before increasing monthly payments - for fixed rate loans the interest rate won't change regardless of what amount is paid each month.
3. Refinance
Many homeowners opt to refinance in order to lower their interest rate or shorten their loan term, saving money over the life of the loan while potentially increasing monthly payments. Before making this decision, carefully assess its effects on your budget before taking this step.
One effective strategy to accelerate mortgage repayment and decrease debt is paying a lump sum off at once from unexpected sources such as tax refunds, bonuses or inheritance. Be sure to consult your lender beforehand so any additional payments go toward principal and not towards future scheduled mortgage payments.
if you decide to refinance, make sure that you shop around for the most competitive rates. Use a mortgage comparison site to gather multiple lender quotes and inquire about fees and closing costs before making your final decision. Also be sure to review your mortgage contract to check for prepayment penalties that could offset some of the expenses of refinancing.
4. Pay Off Other Debts
Debt repayment requires changing spending habits. A budget should help prioritize needs over wants, with money going directly towards paying down your debt each month. Emergency savings accounts should also be set aside.
One possible strategy for paying off mortgage principal faster and reducing interest charges faster is making a one-time lump-sum payment towards it. You could do this using any tax refund, work bonus, or cash gift you receive and apply it directly towards debt payments. This could help accelerate debt payoff faster while cutting interest charges down drastically.
Before paying off your mortgage early, it's essential to carefully weigh both its advantages and disadvantages. Potential downsides could include losing equity, not having a liquid reserve and potentially forgoing significant tax deductions. A financial professional can assist in finding the optimal strategy suited to your unique circumstances by helping calculate potential savings and understanding any applicable mortgage and prepayment penalties as well as ways to minimize their effect on credit scores if applicable.
