Most homeowners would love nothing more than not to have to pay their mortgage every month. But trying to pay off your mortgage ahead of schedule is not something to be undertaken lightly. You must make sure you are financially secure, with no other significant debt, and have money in reserve for emergencies.
There are also compelling arguments for not paying off your mortgage ahead of schedule. For instance, you may want to enjoy your money now. By allotting less of your income toward your mortgage, you have more money available for vacations and other uses. Or you could use the money for home improvement, which can make your home more comfortable and valuable when you are ready to sell.
In your haste to be rid of your monthly mortgage burden, you cannot afford to mortgage your financial future. Make sure you will be able to finance your children’s college education and your own retirement.
However, if you are in a debt-free financial position where you can pay off your mortgage more quickly without sacrificing other aspects of your life, there are ways to accomplish this. Naturally, you will have to consult your lender to see what you can and cannot do.
Here are a few of the most popular options:
1. Increase your payment schedule. Bi-weekly mortgage payments have become increasingly popular as a way to pay off a mortgage more quickly. This will allow you to make 1 extra payment per year and will end up saving you thousands of dollars in mortgage interest while cutting years off of your loan. Signing up for a bi-weekly or accelerated mortgage payment program will not only help you save money and cut the term of your loan down but it they will also help you build equity into your home faster.
2. Make lump sum payments. Depending on the terms of your mortgage agreement, you may be able to make lump-sum payments at specific times. For example, you could earmark your bonus check of $5,000 to pay off part of your mortgage. A lump-sum payment is applied directly to your outstanding principal if there is no outstanding interest owing. This saves you money over the course of your mortgage.
3. Shorten the time frame of your loan. You could elect to refinance and change your 30 year mortgage to a 15 year mortgage. Bear in mind, though, that your monthly payments will be considerably higher.
4. Increase your payments. If your financial situation has improved and you are making more money, you may be able to make higher payments or balloon payments. Most loans will allow you to increase your payments in this manner with certain restrictions.
5. Refinance at a lower interest rate, but pay the same amount each month as you did before. If you maintain a 30-year mortgage, the money you were paying in interest can now to toward the principal.
Remember, the first step is to make sure you can afford to pay off your mortgage more quickly. Contact us and discuss which of these strategies are best for you.