A home mortgage is likely the largest source of debt most Americans will take on during their lifetime. Naturally, many people hope to complete these payments as early as possible to absolve any debt and avoid higher interest rates. Here are four tips on how to pay off your mortgage within a shorter period of time.
- Round Up Your Payments: This is an easy and relatively painless way to shave time off your mortgage. Lets say, for example, you have a $200,000 30-year fixed-rate mortgage with an interest rate of 3.8 percent. In this case, your monthly payments would be about $932. If you round your payments up to $1,000 a month you could save yourself years of interest payments without feeling much of a difference.
- Make An Extra Payment Each Year: Use your holiday bonus or gifts to make an extra monthly payment at the end of the year. Or, if you prefer, add an extra twelfth of a payment each month. For instance, in the example above, one twelfth of your $932 monthly payment would be about $78. If you add that amount every month you will save yourself 30 months of payments, which means you will pay off your mortgage in 26 years rather than 30.
- Refinance Into a Shorter Loan: Interest rates tend to be lower for shorter term loans because they are less risky for the lender. In addition, if you swap out your 30-year loan for a 15-year loan you can save 15 years worth of interest! For example, let’s say a 15-year mortgage has a rate of 3.07 percent. If you have the same $200,000 mortgage, your monthly payments would be $1,388, which is $457 higher than the 30-year version. BUT, since you would be done in half the time, you would only be paying $49,823 in interest, instead of $135,489—which means you would save nearly $86,000!
- Refinance and Pretend It’s a Shorter Loan: If refinancing into a shorter mortgage seems too intimidating, you can refinance into a new 30-year loan with a lower interest rate and pay it off ahead of schedule. This is desirable because you now have the option to pay off the loan at a pace you feel comfortable with while at the same time saving on interest payments.
If you are interested in refinancing or purchasing a home, talk to one of our home mortgage specialists today!
