Let’s say you’ve owned your home for 10 years and you recently got a new job. This new job pays much better than the one you had when you purchased the home, and now you have some extra money in the bank. Your mortgage is your biggest expense, so you have the idea to use your extra income to pay off your mortgage early. Here are a couple of different ways you can go about getting out from under your mortgage payment faster.
There are several ways to add to your mortgage payments.
1. Take your monthly principal and interest and divide the number by 12. Add that to your monthly payment and within a year you’ll have made 13 payments instead of 12. This could pay off your mortgage a few years earlier and save you thousands in interest without adding too much to your monthly payments.
2. Make an extra house payment each quarter and you could pay off your loan more than 10 years ahead of schedule.
3. Round up your payments – a few extra dollars each month adds up.
4. Throw any “extra” money toward your mortgage. Inheritance, tax returns and bonuses happen, and you can put some of that newfound money toward your home loan in a lump-sum payment.
It’s important to check with your lender before making additional payments. Some will only accept excess at specific times or may charge prepayment penalties. Also, always make sure the extra money is applied to the principal, not the following month’s payment.
30 years is the standard rate on a mortgage loan. If you can narrow that down to a 15-year mortgage and keep your monthly payments at a number you can afford, you can pay off your loan in less time. Be aware that there are usually fees involved with refinancing, so be sure to take those in to consideration when determining how much refinancing will save you in the long run.
Paying off your mortgage early may seem like a smart way to get out of debt faster, but there are caveats involved. Low interest rates on home loans mean your money could be better utilized in your retirement or investment options and if you have children who’ll eventually need financial aid for college, some institutions see home equity as money in the bank. Talk with a trusted lender to see if you can benefit from paying off your mortgage early.
Citywide Home Loans make the loan process simple. Visit www.citywidehomeloans.com/ to see how much home you can afford and find a loan program that’s right for you.