Ways to Pay Off Your Mortgage Early

Written by Posted On Saturday, 13 February 2021 14:14
How Can You Pay Off a Mortgage Early? How Can You Pay Off a Mortgage Early?

How to Pay Off a Mortgage

Are you wondering if there are simple ways to get your mortgage paid off sooner? If you want to pay your mortgage off early, you are not alone, and there has never been a better time to do it.

Lots of people ask should I pay off my mortgage. Whether you should is not always cut and dry, it can be helpful to speak with a financial advisor first. What might make sense for you may be different for someone else.

There are many considerations for paying off a mortgage early. Understanding how to pay off a mortgage sooner rather than later takes a bit of discipline and a budget.

Before you start, do some research first.

  • Check with your mortgage company to make sure that they accept additional payments.
  • Make clear that you want any extra payments applied directly to the principal balance.
  • Don't purchase a mortgage accelerator program. You can do this yourself.

You are now ready to start to pay off a mortgage early!

Should I Pay Off My Mortgage Early?

If you have a partner and are paying off the mortgage together, it is important to discuss the plan to work out where you will jointly make the savings. This will take some sacrifices by both parties, and it won't work if either of you feels resentful.

Look at whether you can get by with one car between you. Vehicles are a significant expense, and going from two to one car is a considerable saving.

If it is just you in the mortgage, just do it, as you will know where and how you can make some savings. Once this decision has been made you will be ready to start!

How to Pay Off a Mortgage Sooner

If your lender will allow it, change your mortgage schedule to biweekly payments. By paying biweekly instead of monthly, you will make an extra payment every year. It will be like adding a 13th month in a 12-month calendar.

Many lenders will accept this form of payment.

  • If you can make an extra payment every quarter, you will pay your house off 10-11 years earlier, saving a substantial amount of money in interest you would have spent on the loan.
  • Take your lunch to work, don't buy it; this adds up. Take the money saved and apply it to your mortgage.
  • Refinance your longer-term mortgage to a 15-year loan, and once you have done this, try to pay it off in 10-12 years.
  • Consider downsizing to a smaller house, especially if your children have left home! Do it quickly before they come back.
  • Don't rush into a home purchase that you really can't afford. Try to make a 20% downpayment. If you have concerns about interest rates, take a 15 year fixed term loan.
  • If you are buying a house and feel uncertain about what you should do, consult a buyer's agent. The agent will help you clarify your position and navigate you through the whole process, even working out your closing costs. If you have never bought before, this will help. The agent will also suggest other homes near suburbs that may be cheaper, and sometimes this can be a good option. Just paying less helps.

Should I Pay Off My Mortage By Principal Reduction?

This is different from refinancing as you will be keeping your existing loan and paying a lump sum towards the principal. The bank will then reflect your new balance. Not everyone can afford to do this, but it is worth doing to result in a shorter-term loan if you find yourself in that position.

Doing this is beneficial because bank fees are much lower than refinancing.

Lump-Sum Payments Towards The Principle

You would do this if you received a cash inheritance or an annual work bonus and may use the extra cash to pay down the loan's principal.

If you do this, check with the mortgage company first to ensure that additional payments will be reducing the principal of the loan.

Does it Make Sense to Buy a Larger Home With a Bigger Mortgage?

One of the ways of paying off a mortgage sooner is not having such a large balance, to begin with. Before you lock yourself into a mortgage, there are a few things that you will need to consider.

  • How secure is your employment?
  • How long have you worked there ( more than two years if you are looking to borrow money)
  • Check your credit score. Maintaining a good credit score will help you borrow at the cheapest cost.
  • How debt-free are you?
  • Do you have three to six months' worth of emergency funds?
  • How big is your down payment?
  • If you suddenly need extra funds, where will they come from? (Can you rent a room to a student).
  • If you have any concerns about your deposit, save for another year to reach a 20% downpayment. You will avoid paying PMI, which can save you a ton of money.
  • Alternatively, look for your house in a slightly less expensive area.
  • What you do upfront is important, as it allows you to pay the mortgage off faster.
  • Can I still afford to pay off utilities and maintenance?
  • Forget about holidays and travel for three years. Put the money into the mortgage.

Paying Your Mortage Off Fast

Many young people have never seen a recession. If one comes along, which is likely in periods of economic uncertainty, this can cause the financial market to become jittery and interest rates to rise suddenly.

We all hope that this won't happen while we are paying off our mortgage, but it is another reason to pay it off as quickly as possible. Once you have your home, you can either buy more property or set up a business from home.

There have been times in the past when interest rates have skyrocketed. Some folks will never forget. So there is no time like now with interest rates being super low to buy your house and move ahead with the loan repayments.

Final Thoughts on Paying Off a Mortgage

Paying off your mortgage early is a terrific feeling of freedom, and the longer your mortgage drags on, the more that it costs you and your family. When looking for your mortgage, consult at least three different financial institutions to see what they offer and the difference in costs.

Working with a mortgage broker is always an excellent move as they can search out the best deal possible for you.

It will take a little bit of time to sift through the options, but it is certainly worth it in the end when you get the best mortgage available. Hopefully, you have enjoyed these tips for paying off your mortgage early.

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