If you missed part 1 of our mortgage series click HERE
Have you ever met someone who completely paid off their mortgage? They probably have an extra pep in their step. Just imagine what your life would look like without a mortgage! If you’ve ever thought about paying your mortgage off early, these realistic tips can help you achieve that. Some take more long-term commitment than others, but even if you spontaneously throw in extra payments, you’re still making progress.
In order to simplify things, let’s say you have a $250,000 30 year fixed mortgage at 4% interest rate. Your monthly payment (principle and interest) would be approximately $1,193 a month. With this example, here are the options you have to pay off your mortgage early.
Make an extra payment a year
If you make 13 payments a year, it will make more of a difference than you think. You can either divide that extra monthly payment ($1,193) by 12 ($99) and add that to your normal monthly payments, or pay half of the normal monthly payment every two weeks (also known as bi-weekly payments).
If you started making an extra monthly payment a year from the very beginning of your 30-year mortgage, you would save $27,651 and pay it off in just under 26 years! Even if you’re 5 or 10 years into your mortgage, making a 13th payment from now on will set you up to pay the mortgage off 2-3 years earlier (not to mention the thousands of dollars you’ll save in interest!).
Make an extra payment each quarter
Ready to take it up a notch? Making 4 extra payments a year will have a tremendous affect on your mortgage. Those extra payments will lead to a mortgage pay off in 18 years and 8 months, while saving $74,590 since you paid it off early. Starting the extra payment per quarter 5 years into your mortgage will still allow you to pay it off in 21 years and 2 months.
Make extra payments with bonuses, tax refund, etc…
These extra payments are somewhat irregular as this money might come unexpectedly and the amount fluctuates. Therefore it’s hard to predict the early payoff year, but don’t be discouraged! Making lump sum extra payments when you you’re able will definitely have an impact on your mortgage payoff timeline.
Refinance to a 15-year mortgage
If you are only a few years into your 30-year mortgage, refinancing to a 15-year mortgage might work for you. This method to pay off your mortgage early takes a little more planning and commitment. Your minimum monthly payment will increase, but you’re guaranteed to pay off the mortgage earlier than you originally planned. Keep in mind there are closing costs associated with refinancing.
Make sure you check with your mortgage lender before making any sort of extra payments. You’ll want to ask the lender the best way to make those extra payments without penalty and ensure they are being applied to the principal. When you decide which early mortgage payoff plan works for you, write it down and stay motivated! You will see the benefits of your hard work!
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