Practical Tips in Paying off your Mortgage Early

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Mortgage just like any other loans - car, student or credit card - should also be paid off early to avoid too much interest, penalties, other charges and most of all stress of being in debt for a long time. In this time of a pandemic and economic recession, you might be finding it a little harder to pay it off on time due to loss of income, pay cuts and other financial problems you are facing right now.

Here are a few tips on how to pay off your mortgage on time and work toward becoming debt-free.

Make bi-Weekly payments

Instead of the regular monthly payment, submit half the payments to your lender every two weeks so less interest will accumulate and you will pay an extra payment each year. Before making bi-weekly payments, discuss with your lender first so you will not be penalized.

Round up your payments

Rounding up your payments is a way to pay extra without missing the funds. For instance, your mortgage monthly payment is $145.75, you may choose to round it up to $200, which is an extra $54.25 per month. After 12 months that's four additional payments which will save you money on interest and shorten the term of your loan.

Find extra fund

You can do side hustles to pay-off your loan faster. Anytime you earn extra, you can use the fund to pay down your loan. Small amounts like $20 here and $10 there will definitely add up. If you have a small part-time job on the side that pays an extra dollars per month, put that toward the loan.

Make an extra payment

You can use the money from your tax refund or yearly bonus to make at least one extra payment per year. It will help pay down your loan faster, even if you don’t have the cash flow to commit to bi-weekly payments.

Refinance your loan

One of the easiest ways to lower your payment, save interest, and pay off your loan in half the time is through refinancing. Many local banks and credit unions are offering super-low interest rates on mortgage loans amidst this pandemic and economic downturn, which means now is the perfect time to do it.

To help you understand better about refinancing, here is an online mortgage refinance calculator to help you compare your remaining loan term against the interest you will pay if you refinance.

On the first part of the calculator is your old mortgage details composed of the following :

  • Home price
  • Down payment, must be at least 25% of the home price
  • Original loan amount is calculated automatically by the calculator
  • Original APR
  • Original loan term, which can be up to 30 years
  • Time left on original loan term, in months 

Second part is the Mortgage Refinance Terms, which needs the values for the following:

  • New loan amount
  • New loan term, should be lower than the time left on original loan term
  • New interest rate (APR %), it is always lower than the original APR. You refinance when interest rates fall.

Last part is the Refinancing Closing Costs, such as:

  • Discount Points
  • Origination Points
  • Other Closing Costs

The result will give you a better idea on how much you can save thru refinancing by showing a comparison of your old loan and your new loan. There might be minimal charges for refinancing, as shown in the result; but those are just a few dollars compared to the thousands of dollars you will save because of lower interest rates and shorter loan term. 

Bottom line, paying off your mortgage loan or any kind of debt early will save you money in interest and decrease the overall term of the loan. Your extra money can be used to save for retirement, make home improvements, or pay off other debts. Most of all, you can enjoy the biggest benefits of paying off your mortgage on time or earlier - a less stress and less risk life.