There are many great things about owning a home , free and clear. According to Credible , the main benefit is easy to predict housing costs. Once your mortgage is gone, you have a place to live forever. Bills like property taxes , utilities, and even homeowners insurance are often nominal when compared against mortgage principal and interest payments. You also have the benefit of owning something that tends to appreciate in value each year. In addition, having 100 percent equity in an asset can be a great source of leverage when overcoming personal debts or starting your own business. If you don’t have a mortgage anymore, there are no limits to how you can use the extra money. You can save more to enjoy a lavish retirement, buy a boat, beef up your dream vacation fund, or pay cash for your children’s education. If you want to pay off a mortgage early, here are some top tips to help you achieve this goal. Make sure there isn’t a penalty for paying your loan early
Mortgage lenders make their money from your interest payments. When you sign up for a traditional 15 or 30-year mortgage, most lenders are really counting on your interest payments for every one of those years, so their business can profit. If you want to pay your mortgage early, lenders get less interest and therefore less money in the long run. Some loan agreements attach an early payoff fee to their home loans to avoid this loss.
According to Rocket Mortgage , most prepayment fees are not from occasional extra payments or one larger lump sum payment. That is, as long as the payments are not more than 20 percent of the loan. Most mortgages allow you to pay up to 20 percent of the loan off each year. If you are inching towards the 20 percent mark, speak to your lender, or review your loan paperwork, to discover your fee. All lenders are different, so some might charge a fixed repayment fee, while others might charge a percentage based on the amount of loan left. Refinance your mortgage
If you are currently on a 30-year term, you might want to move it to 15 years to pay more of the principal each month and less interest overall. According to Bankrate , when you refinance your mortgage, you get a completely new home loan. Sometimes, you might refinance your loan to get a lower interest rate than you originally signed up for. In other instances, you might shorten the length of your loan because your finances have changed, and you can pay more each month.
However, refinancing doesn’t come without upfront costs. So, before you decide to refinance your mortgage, take a look at the entire home loan. Speak with your lender or financial advisor and crunch the numbers. Would making extra payments on your current loan accomplish the same goal? Think things through. You always want to pick the option that saves you the most money, both now and in the long term. Make one lump sum payment
If you recently received a significant payout, you can choose to put it all toward your mortgage. Maybe a family member passed away and left you a lump sum, perhaps you received an insurance payout, or maybe you just had a lucky day at the casino. According to Commerce Bank , you can send your mortgage lender a large check on top of your monthly payments if you don’t need the cash for your monthly budget and other bills.
You will need to specify that the funds go toward the principal loan and not just act as a credit on your account. This way, your lender doesn’t think you are just prepaying for upcoming debits. Each lender has its own way of designating these “principal only” loan payments, so before writing a check and sending it on its way, confirm with your lender about their specific practices. It’s always good to double check these things. Make extra payments periodically
You don’t have to make one lump sum payment or even pay extra every month. Sometimes, you might have a little extra money left over at the end of the month. Why not put that cash toward your mortgage? According to the Mortgage Calculator , just making one extra payment a quarter can take thousands in interest off the course of your loan. You can use the online mortgage calculator tool to see how much impact your smaller payments can […]
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