Tuesday, January 28, 2014

How to pay off your mortgage earlier

If you listen to any financial guru on talk radio or see them on financial shows on cable news, almost all will generally advise homeowners to pay off their mortgages early, if possible. How much you save depends on the amount of your mortgage, the length of time you pay and your interest rate.

The advisors put forth many strategies to accomplish the goal of paying off the house. Really, it all boils down to one thing: paying extra money up-front to save you money in the long run.

Refinancing isn’t the only option

Occasionally, lenders will offer refinancing programs in order to drop your interest rate. This means that your monthly payment will be less, of course. However, unless it specifically allows you to keep the length of your mortgage static, most of the time when you refinance, your mortgage will be 30 years. Again. If you can swing it, and if they offer it, look for mortgages that offer fewer years. The 15-year refi has been popular over the last couple of decades.

Pay more however and whenever you can

Most lenders will allow you to pay off your loan early without penalty. Any amount you pay extra on the mortgage payment comes right off the principal, which can greatly reduce the amount of interest you pay in the long run.

Here’s where the financial gurus get in a lather and offer all kinds of advice to accomplish your goal.

Round up your payment

Every month, pay your mortgage up to the next $100. If you can’t afford it month in and month out, round up to the next $50. Any money you pay extra comes off the principal.

Switch to biweekly payments

This requires a little more leeway in your budget. When you make biweekly payments, you are simply taking advantage of the fact that there are 52 weeks in the year and 12 months. When you pay half of your regular mortgage payment every two weeks, you will have made 26 half payments, or 13 full monthly payments, by the end of the year.

Pay extra when you have it

Keep in mind that you can make irregular payments and send any amount when you have it. When you get a tax refund, a bonus or any other type of windfall, apply it to your balance.

Take a look at what you’ll save

If you want to have some fun, go to a mortgage calculator and punch in some different options to see how much you’ll save.

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