Here are 5 Proven Methods To Pay Off Mortgage Early
1. By Making Extra Payments
One of the best ways to pay off your mortgage is by making extra payments. You can make extra payments by making biweekly mortgage payments or making an extra monthly payment. If you split your mortgage payment in half, you can make biweekly payments and finish off your mortgage. To proceed with this approach, you need to contact your lender to be sure whether they accept biweekly payments. The next way to complete this first step is to pay an extra against the principal each month.
A practical example is when you have a 30-year mortgage for $250,000 and the interest rate is just 4 percent. If you decide to make an additional $100 payment to the principal balance of your loan, you will take off four years and waive $27,957 in cumulative interest payments from your mortgage. Making extra payments is better than refinancing when it comes to paying off your mortgage early.
2. By Refinancing Your Mortgage
Another way to pay off your mortgage is to refinance it. This involves getting a lower interest rate or shortening the loan term. Ensure that the savings outweigh the cost of refinancing your mortgage.
When you refinance by reducing your mortgage on a short-term loan, the interest rate will reduce. Also worth noting is that you will get an early payoff. A practical example is when you reduce a 30-year loan to a 15-year loan.
3. By Recasting Your Mortgage
This step is very much different from the step explained above. When you recast your mortgage, you keep the existing loan, pay a sum of money towards the principal, and then your mortgage lender will adjust your payoff schedule to reflect a new balance. It is important to note that the result of recasting your mortgage is just a lower monthly payment, but the same interest rates. One major perk of recasting is that the fees are lower than refinancing.
4. Pay lump-Sums Toward Your Principal
Making lump payments is a good alternative to recasting. This can be due to a financial windfall, or an unexpected increase in cash flow. A tax refund, work bonus, or inheritance fund can facilitate this step.
It is important to note that the FHA and VA mortgage loans cannot be recast. Most mortgage providers insist that you specify whether your excess payments will be put forward by the principal. Check with your provider to be sure how the lump-sum payments will be applied to your mortgage.
5. Apply For A Loan Modification
Another approach that can be used to pay off your mortgage early is applying for loan modification. This option is for homeowners who are going through financial hardship, modifying your mortgage is a sure-fire way to pay off early. The mortgage service will have to adjust the interest rate or loan term to make it easier for you.
This helps borrowers to be able to save on interest and pay off their mortgage faster. Also bear in mind that changing your mortgage terms will affect your credit score.