Refinance, biweekly payments and other tips that lead to an early mortgage payoff. (iStock)
If mortgage loans are weighing you down, there are some things you can do to save money and free yourself from that huge monthly mortgage payment. If you're looking to pay off your mortgage early, you have a couple of options to consider.
Here are give ways to cut your monthly payments and pay off your home sooner than anticipated. While some strategies may take more personal finance planning than others, the mortgage payoff goal is the same — to save money for your bank account.
- Refinance your mortgage to a lower interest rate
- Make biweekly payments
- Use extra money to make an extra mortgage payment
- Decrease expenses and apply the savings to your mortgage
- Rightsize your housing
1. Refinance your mortgage to a lower interest rate
One option to help pay off your mortgage early is refinancing your mortgage. It's a great time to refinance your mortgage, thanks to lower loan rates. Credible's online refinance guide — complete with easy tools to help you compare rates and lenders — can help you compare mortgage rates and find the best deals available right now with affecting your credit score.
HOW TO GET THE BEST MORTGAGE REFINANCE RATES
A mortgage refinance can work a couple of ways. When you refinance to a lower interest rate, you’re paying more toward the principal balance. You can choose to keep making your original mortgage payment to payoff the principal much faster. Or you can also refinance to as a shorter-term loan, which would help reduce your principal balance sooner.
Say you have 20 years left on a 30-year mortgage, just change the terms to 10 or 15 years. Another option, since the Federal Reserve cut rates last month, is to take cash out from a refinance and put it toward paying down the mortgage faster.
You can input some of your information into Credible's online form to find out what mortgage rates you qualify for. Compare pre-qualified rates from six mortgage lenders in minutes with impacting your credit score.
MORTGAGE RATES NEAR RECORD LOW — WHY YOU SHOULD REFINANCE NOW
Use this online mortgage refinance calculator (input your current home loan amount, estimated home value and more) to see an overview of your potential savings — and for some peace of mind.
2. Make biweekly payments
Pay your mortgage more frequently. There's a big benefit to switching to a biweekly mortgage payment instead of your one scheduled monthly payment. Believe it or not, this tried and true method adds up to making one entire extra payment a year.
Just let your mortgage lender know you will be splitting your monthly mortgage in half by making two biweekly payments every month. Some lenders even have payment plans designed specifically for the biweekly payment borrower. Before getting started, inform your lender the extra payments should go toward the principal balance and not the interest.
HOW A HOME REFINANCE COULD SAVE YOU MORE MONEY
3. Use any extra money to make an extra mortgage payment
Don’t sleep on any extra money you have may come across. It's always wise to make an extra mortgage payment whenever you get the chance.
Extra money like payday bonuses, tax refunds or unexpected windfalls, can be put toward the mortgage payoff. An extra mortgage payment, whether each quarter, every other month or as you have extra money, is great for expediting that mortgage balance payoff date. Again, remember to let mortgage lenders know to apply those extra funds directly to the mortgage principal. This is especially true early on in your mortgage when the bulk of your payments go directly toward the interest.
4. Decrease expenses and apply the savings to your mortgage
Whether it’s cutting the cable cord, bringing your lunch to work or eliminating the fancy coffee drinks, your financial decisions affect your bank account. Take those saved funds and invest them in your mortgage principal. You’d be amazed at how much cutting those small things out of your budget can help.
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5. Rightsize your housing
Maybe your home was perfect for your lifestyle at the time you purchased it. But if your household has changed, whether the kids are grown and out of the nest, you’ve divorced and are in your home solo, or maybe you just don’t want the maintenance tied to the size of your current home, it could be time for a change. One idea is to sell your home and use the equity in it to purchase a smaller home with cash. This eliminates the need for a mortgage altogether – or at least allows you to pay a hefty down payment upfront.
While paying off your mortgage early is a good idea for some, it may not make good financial sense to everyone. If you have a low-interest rate mortgage, then you may want to consider focusing on paying off higher interest rate credit cards and loan accounts. While being mortgage-free is awesome, don’t do it at the expense of other essential savings such as retirement, college tuition or rainy day savings.
Also, review your mortgage documents to make sure you won’t be charged any prepayment penalties, although rare, it’s always good to double-check.