Your home mortgage can eat up a good portion of your check each month. This can make it harder for you to have extra spending money or that extra money that you would like to use for retirement planning and more. Many homeowners are eager to find ways to get out of their mortgage as early as possible.
There are different reasons why a homeowner would be excited to get that mortgage paid down, from getting rid of the debt, no longer having to pay interest payments, and having more cash flow. But how will they get started with paying off their home mortgage early? Some of the simple steps homeowners can use to pay their home mortgage off early include:
Make Extra Payments
There are two main ways that you can make your extra payments in order to pay off the debt faster. These include making biweekly mortgage payments and the other is making extra monthly payments.
Biweekly payments are not available through every mortgage lender, so you will need to check with yours to see if it is possible. The goal here is that you make half your payment every other week, instead of one big payment. By the end of the year, you have made 13 months of full payments, rather than the 12, which can save you a lot of money in interest.
The second option is to pay extra to the principal of your loan each month or make one principal-only payment to the mortgage each month. This can save you a ton of money in interest over the full life of your loan and helps you pay off the principal amount faster too.
Refinance the Mortgage
A cash-out refinance will not work here. You should only refinance if you are able to get a much lower interest rate or if you can shorten the term of the loan. There are some costs that come with refinancing your loan, so make sure that the numbers make sense for you.
For example, you can choose to refinance the mortgage from a 30-year to a 15-year mortgage. This can lower the interest rate and help you to take years off your loan. The shorter term could make the monthly payment higher, but you are also getting the loan paid off faster than before.
Recast the Mortgage
When we talk about mortgage recasting, we are looking at something a little different than your mortgage refinance. With mortgage recasting, you will keep your original loan, pay a large lump sum to the principal. The lender will then choose to adjust your amortization schedule to help show the new balance.
Often, the lender will keep it on the same original schedule. If you had 26 years left in the mortgage, they would just spread the principal that is left over the 26 years. This would lower your monthly payment, but the interest rate and loan terms stay the same. You can decide to stick with the lower payment or keep making bigger payments.
One major benefit to this option is that the fees are going to be much lower than refinancing. Mortgages can do a recasting fee that is between $200 to $300, though this will vary depending on your lender. And if you already have a very low interest rate, this method allows you to still keep that one. If your current interest rate is higher, then a refinance may be the best option.
Make a Lump Sum Payment to the Principal
For some, a good alternative to recasting your loans is to make a lump-sum payment to the principal. You can do this any time you have extra money during the month or you get a financial windfall to help you out. This could be an inheritance, a tax refund, or even a bonus at your work.
This is a good option for some of the loan types, like FHA and VA, that you are not able to recast. The lump sum payments can save you some fees, help you to get your loan done faster, and are often easier than having to contact your mortgage provider in the first place.
When you do this method, the main thing to remember is that when you make the payment, you need to tell the mortgage servicer that you would like all of your extra payments to be put to the principal. Some will try to put it to payment ahead instead. If you specify it, this can help solve the problem.
Get a Modification to Your Loan
If you are working on your mortgage payments and find they are not affordable, but you are looking to get back on track and want to try to pay off the loan a bit earlier, then it is a good idea to look into a home loan modification.
These types of loans are often reserved for borrowers who have financial hardship because the bank would much rather work with them than go through the foreclosure process. A loan modification will entail the lender adjusting the loan term or the interest rate to help make the loan current at this time.
When this option is used, it is possible to save interest and then work to pay off your loan a little faster. It could cause some damage to your credit though, depending on whether the lender decides to report this to the credit agencies. You can ask about this ahead of time to see whether it is a concern for you.
Paying Off Your Home Mortgage Early
Paying off your home mortgage as soon as possible can be a great experience. It allows you a way to keep your cash flow high and can be a very rewarding experience when you can finally say goodbye to some of that debt that others have to deal with for years to come. Follow the steps above to see how easy it can be to pay off that mortgage early.