The idea of waiting 30 years to pay off the loan on a home can feel like forever. Many people assume that between refinancing and moving, they will have a house payment for the rest of their lives. For those uninterested in holding onto a mortgage forever, there are ways to pay off the mortgage loan early and get a little extra financial freedom. Here are three tips for paying off a mortgage early.
Up the Payment Each Month
One of the easiest ways to pay off a mortgage early is to add a little bit to the payment each month. Whether it’s $15 or $50, it can make a difference in the length of the loan. While that amount of money may not be much, it is put towards the principle, decreasing the amount of time it takes to pay off the loan. Forbes suggests that if you want the extra money to go towards the principle, you will need to document this. You can either include a note with your mortgage payment or you can use the coupon provided to you for each month’s payment to indicated extra money towards the principle.
Add a Lump Sum
What happens to your tax return? How about your annual work or Christmas bonus? This money, if not part of the budget, can be put towards the mortgage. These larger amounts make a significant difference and allow a person to quickly reduce the length of a mortgage. Does putting the entire lump sum to the mortgage sound like too much? Instead, consider taking a percentage of any bonus or windfall that a family receives and putting it towards the mortgage. Just like the increase in monthly payments, it is important to note on the payment stub or by note that the money should be applied directly to the principle.
Refinancefor a Lower Term
Refinancing may not seem like it will help pay off the mortgage early. In fact, when most people think about refinancing, they assume that the process starts all over again, resetting the loan to another 30 years. However, it is possible to refinance a loan with a lower term. The most common loan term outside of 30 years is 15 years. While the payment goes up monthly, the debt is paid off quickly. Before making this decision, consider how much of a mortgage payment is being made now and find out if the 15 year loan’s payment is affordable. According to Real Simple Magazine , the difference in payment each month could be minimal, depending on current interest rates. Check out Money Tips for more information on how to refinance a home loan.
Decreasing the amount of debt a person owes is always an appealing option. For most people, the mortgage is the biggest debt resting on their shoulders. While it won’t happen overnight, there are ways to pay off a mortgage early and get out from underneath a home loan. With gradual additions to the payment, significant additions to the payment or even refinancing, a person can see a real change in overall debt.