You took out a mortgage with a specific term, but now you want to pay it off faster. Fortunately, you don’t have to refinance to pay your loan off sooner. There are ways that you can make larger payments, getting your principal paid down faster, which pays your loan off early.
Pay a Little Extra Every Month
Most lenders allow you to pay extra money toward your principal balance. How much you pay depends on what you can afford. Whether you send an addition $50, $100, or $500 – it’s up to you. Just make sure you mark your mortgage coupon accordingly. There should be a spot to mark the extra principal. This ensures that the extra funds get allocated correctly.
While $50 or $100 a month doesn’t sound like a big deal, it adds up. Even this little amount can knock some interest off the life of the loan and a few months off your loan’s term. The key is to keep the extra payments consistent for the greatest results.
Make an Extra Payment Every Year
It’s easy to make an extra payment every year. You have two options:
- Make one lump sum payment – If you get a bonus, tax refund, or have some other way that you get a windfall, you may want to make the extra payment all at once. You can do this at any time of year. Again, make sure you mark the coupon accordingly so it directly pays down your principal.
- Pay 1/12th of the mortgage payment each month – If you can’t afford a lump sum payment, divide the payment by 12, and pay that amount in addition to your regular mortgage payment each month. After 12 months, you’ll have made an extra payment that year.
Making 13 payments a year can knock a few years and several thousand dollars of interest off the life of your loan.
Make an Extra Payment Every Quarter
If you have the funds, make an extra payment more frequently than once a year. If you make an extra payment every three months, you’ll have made four extra payments each year. This could easily knock off several years and a lot of interest off your loan.
Apply a Windfall to Your Mortgage
If you receive a work bonus, work on commission and have a large sale, or get a tax refund, consider applying the funds to your mortgage. You can send any amount that you want to knock your principal down. If you do this regularly, you can knock plenty of time and interest off the life of your loan.
Pay Your Mortgage Every Other Week
This may sound strange, but if you make half of your mortgage payment every other week, you’ll naturally make 13 payments every year. Since there are 52 weeks in the year, you make 26 payments without having to budget extra money. At the end of the year, you’ll have made one full extra payment. If you do this continually, you’ll save yourself money on interest in the long run.
Calculate 15-Year Payments
If you can afford 15-year payments, but don’t want to spend the money on refinancing, here’s a simple tip. Use a mortgage calculator to figure out how much a 15-year payment would be given your interest rate and loan amount. Then make those payments. Make sure you let the lender know that the extra money is for your principal balance. You can then pay your loan in half the time, saving yourself thousands of dollars in interest and being mortgage-free in half the time.
Paying your mortgage off faster is possible. Whether you pay a little or a lot, your efforts pay off in the end. Always check with your lender to make sure they don’t charge a penalty for paying your loan off early, but most don’t today. Also, make sure you don’t pay the lender to set up bi-weekly payments for you. Many will do that as a service, but then charge you a fee for each payment. This takes away from the amount you pay toward your principal balance. You can do it on your own just as easily.