For many homeowners who have found their forever home, paying off their mortgage loan is a major financial goal. Without a monthly mortgage payment to consider, borrowers can put those funds into other things like monthly expenses, retirement, or growing their investments. Depending on the length of a homeowner’s loan term, paying off a mortgage early can offer benefits like maximizing home equity and paying less interest overtime.
If you’re interested in paying off your mortgage early, here are five different options available to you.
Make Additional Payments Toward the Principal Balance
A borrower’s monthly mortgage payment typically goes toward both the interest and the principal balance on their mortgage loan. Traditionally, homeowners pay more toward their interest balances in the initial years of the loan. Over time, more of the monthly mortgage payment goes toward paying down the mortgage’s principal balance.
Paying more toward the principal balance monthly decreases the loan amount and shortens the term of the mortgage.
Homeowners may be able to pay more toward their principal balance without incurring additional fees. It’s important to check with your mortgage lender when making the decision to pay off your mortgage before your loan term ends.
Make Bi-Weekly Payments
Bi-weekly payments can be a practical way to pay more toward a mortgage for some homeowners.
Instead of making one monthly lump sum payment, homeowners who are looking to pay down their mortgage quickly may be able to make bi-weekly mortgage payments. Each payment will be equivalent to half of a borrower’s current monthly payment.
Homeowners who choose to make bi-weekly mortgage payments make a total of 26 mortgage payments in one year. This works out to paying the equivalent of 13 months of mortgage payments instead of 12.
Refinance Your Mortgage
Homeowners often consider refinancing their mortgage to access the equity in their home and take cash out or to get a new mortgage rate. However, mortgage refinancing can also help homeowners to shorten the length of their mortgage loan term and help them pay off their loan quicker.
A common way homeowners pay down a mortgage quickly is by refinancing a 30-year mortgage down to a 15-year mortgage. 15-year mortgages can cut a loan term in half. Borrowers with shorter loan terms pay more each month in mortgage payments, however because the term length is shorter, these borrowers often pay less interest on their loan.
If you’re interested in shortening your loan term, you can learn more about Newfi’s 15-Year Mortgage here.
Depending on your situation, refinancing may also offer a lower interest rate. A shorter loan term is sometimes viewed as less risky by lenders. Because of this, some borrowers may be able to qualify for a lower interest rate.
Downsizing Your Home
Many homeowners want to pay off their mortgage quickly because they don’t plan to move. Other’s may just be looking to pay less interest or lower their overall monthly expenses. Downsizing can be an effective way for homeowners to lower their monthly payments and leverage their current home’s equity.
When homeowners sell their home, they can apply profits from that sale directly to the new loan as a down payment, which will make the remaining principal balance on the new mortgage much smaller.
If you’re thinking about using your current mortgage’s equity to purchase a new home, you can speak to a dedicated Senior Loan Advisor with no commitment or fees. Call us at 888-316-3934 or go to https://newfi.com/get-started-2/.
Apply Financial Windfalls to Your Mortgage
A financial windfall occurs when a large amount of funds comes into someone’s life when they do not expect it. Financial windfalls may be things like inheritance, a work bonuses, winning the lottery, or a large tax return.
Depending on a borrower’s mortgage lender and their overall financial situation, utilizing windfall funds could be an effective way to pay down their mortgage. Borrowers can choose to apply some of these funds to their mortgage to immediately reduce their mortgage balance.
Is Paying Off Your Mortgage Early the Right Decision for You?
Homeowners who want to pay off their mortgage early may find that there are several benefits to paying off their mortgage early. However, we recommend speaking to a mortgage professional about your situation before making any changes.