Want To Pay Off Your Mortgage Faster Than 30 Years
Many homeowners with 30-year mortgages feel like theyllnever be without the burden of debt.
Fortunately, there are several good waysto pay off your mortgage faster and save big on interest payments.
Even better, not all methods require spending a lot of extra money.
But consider your options carefully. If you have extra cash to spend on your mortgage, it may generate more value elsewhere.
Heres what you should know.
Early Mortgage Payoff Calculator
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Get A Cash Back Credit Card
If youre able to stay controlled with credit cards, open a cashback account, and put all your purchases on your card.
Every time you go to the grocery store or purchase gas, youll get a percentage back just make sure you pay the card off every month.
Then, take your earnings, and pay them toward your mortgage.
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How Does One Payment Matter
Making an extra payment to your mortgage is something that you should consider because it can save youthousands ofdollars. The fact is that just one payment can make a considerably difference in the total that you payforyour home and what’s more, it can shave years off of that mortgage. Take a look at the followingexample.You can use a mortgage calculator to help you to find out this information specific to your currentloan.
If you currently have a $200,000 mortgage loan and you have secured an interest rate at 6.5 percent, yourmonthlypayment is likely to be $1264 dollars per month if your loan term is 30 years. This is a considerablepaymentand you may not realize that the real facts of what you will be paying on the home you are purchasing.It willcost you far more than $200,000.
Original mortgage amount: $200,000Total interest paid on your loan: $255,088.98How much you will really pay in fullat the end of your term: $455,088.98
This information is provided to you on your amortization statement which is what you will see at the timeof closingthe sale on your home. Your lender must provide this for you before you sign your paperwork, so itshould notbe too much of a surprise to you as to how much you will pay for your home when interest is factoredinto the cost.If you are still unsure, use a mortgage calculator to help you to see what these numbers are for yourparticularsituation.
Refinance Your Loan If You Can
Interest rates are constantly changing. If you had a high-interest rate when you bought your car, look into refinancing it at a lower cost. This is especially a good idea after you have made a few payments and raised your credit score. The lower your interest rate the more money you will save in the long run. But keep making your original payment even though the amount you owe each month will generally go down!
We find we get the best loan rates with Navy Federal and USAA as a military family so make sure to shop around!
What other ways have you found to cut your car loan payment in half? Share your mad skills in the comments below!
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Refinance For A Better Rate
Interest rates are still fairly low in the United States. While this factor changes from week to week, you should talk to several different lending institutions and find out if you can save money by refinancing.
If youll save at least a few hundred dollars per month on your payment, you can throw that money toward your principal each month.
Interest Rates And Fees If You Refinance Your Home
The interest rate on the refinanced part of your mortgage may be different from the interest rate on your original mortgage. You may also have to pay a new mortgage loan insurance premium.
You may have to pay administrative fees which include:
- appraisal fees
Your lender may have to change the terms of your original mortgage agreement.
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Downsides To Paying Off Your Mortgage Early
Most financial experts encourage homeowners to puttheirextra money into retirement accounts instead of paying off mortgagesearly.
The reason? For almost a century, the stockmarket has earned a 10% average annual rate of return. That means homeownerscould potentially earn more by investing in the stock market than theyd save by paying downtheir mortgage balance.
Plus, some homeowners write off their mortgage interest payments as a tax deduction which means they could get some of that money back at tax time.
There are other potential drawbacksto consider before paying off your mortgage early:
Finally, before paying extra on the mortgage, many personal finance experts recommend building an emergency fund in case you lose a job, get injured, or face other financial troubles. Without emergency funds in a savings account, you may have to use higher-interest credit cards to pay unexpected expenses.
Questions to ask before paying off yourmortgage early
Is paying off your mortgage earlythe best financial decision for you and your family? Itdepends on your unique situation and financialgoals.
Here are a few questions to helpguide your decision:
If your main objective is to bedebt-free as soon as possible, then look into one of the five strategies aboveto pay off your mortgage faster. You may have already paid off other personal debt likestudent loans or credit cards it could make sense to target your mortgage,too.
Refinanceor Pretend You Did
Another way to pay off your mortgage early is to trade it in for a better loan with a shorter termlike a 15-year fixed-rate mortgage. Lets see how this would impact our earlier example. If you keep the 30-year mortgage, youll pay more than $158,000 in total interest over the life of the loan. But if you switch to a 15-year mortgage, youll save over $85,000and youll pay off your home in half the time!
Sure, a 15-year mortgage will probably come with a bigger monthly payment. But if it fits within your housing budget, itll totally be worth it! And hey, maybe youve boosted your income or lowered your cost of living since when you first took out your mortgagethen youd definitely be able to handle the bigger payment.
You can refinance a longer-term mortgage into a 15-year loan. Or if you already have a low interest rate, save on the closing costs of a refinance and simply pay on your 30-year mortgage like its a 15-year mortgage. What if you already have a 15-year mortgage? If you can swing it, imagine increasing your payments to pay it off in 10 years!
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Use This Trick To Cut Your Mortgage In Half
We have all seen ads floating around the Internet that promise to let you in on a special secret that magically cuts your mortgage in half. The ads scream Use this Trick to Cut Your Mortgage in Half or This Mortgage Secret has Banks on Edge Will Save You Thousands or how about This Obama Program Takes 15 Years Off Your Mortgage. The exact verbiage of the ads may be a bit different but you get the idea. The ads are ubiquitous and enticing who wouldnt want to cut their mortgage in half?
At FREEandCLEAR, we are passionate borrower advocates and always seeking new ideas to help people save money on their mortgage so we decided to dig a little deeper. Could there really be a government program, secret, trick or perhaps a magic wand that cuts your mortgage in half? Much to our dismay, these claims fall under the category of too good to be true. Most of the ads direct people to online forms where you are requested to submit your personal information and in return for providing your information you are contacted by multiple mortgage lenders. There is nothing wrong with requesting someones contact information and we are certainly proponents of comparing lenders when you shop for a mortgage. Not surprisingly, however, these websites do not offer borrowers miraculous tricks or magical spells to slice their mortgage in half, so the ads are misleading at best.
Select a 15 Year Mortgage Term
Example: Comparing a 30 Year Mortgage to a 15 Year Mortgage
Homeowners Borrowing Into Retirement
New data from UK Finance shows a rising number of homeowners are taking out mortgages that will take them beyond the age of 65.
In the first half of this year, banks granted 325,000 such mortgages, thats 52% of overall deals.
313,000 new mortgages are scheduled to end when the borrower is aged between 65 and 74, while 12,680 will continue beyond the borrowers 75th birthday, as shown in the chart below.
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What Are Biweekly Payments
Biweekly payments, as the name suggest, are payments you make every other week. Rather than paying the full amount of your mortgage payment once a month, you pay half of the total due every other week. You send the half payment into your lender one week and two weeks later you send the remaining half. This helps to decrease the amount of the principal faster. Since the bank charges you interest based on the outstanding principal amount, you automatically lower the amount of interest you pay. This helps you tackle the principal faster and potentially cut a few years off your loan term.
Should I Pay Off My Mortgage
Just because you can pay off your mortgage early doesnt necessarily mean that you should. Of course, it would feel great to rid yourself of a huge financial burden like a mortgage. But if you really want to know if its a good decision, you have to look at the math.
There are pros and cons to paying off your mortgage early. Whether the pros outweigh the cons will depend on your overall financial situation.
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How To Use The Early Payoff Mortgage Calculator
- Enter the original loan amount and date you took out the mortgage
- Input the loan term and interest rate
- Select the date of extra payment
- Along with the amount and frequency
To use the early payoff mortgage calculator, simply enter your original loan amount when you first received the loan, along with the date you took out the home loan.
Then enter the loan term, which defaults to 30 years. You may also enter 360 months for a 30-year loan, or 15 years for a 15-year fixed depending on loan type desired.
Speaking of loan type, youll save a lot more money by paying extra on a mortgage with a longer term, such as the 30-year fixed. And if the loan amount is larger.
Next, enter the mortgage rate and the date you plan to make the extra payment. Then input the additional payment amount and whether itll be a monthly, annual, or one-time extra payment.
For example, if you plan to pay an extra $100 per month, you shouldnt have to change anything with the default settings. If you want to make a lump sum extra payment of $1,000, enter it and change the Monthly to One Time for an accurate calculation.
Once you click compute, youll see how much the extra mortgage payments will save in the way of interest over the life of the loan, and also how much faster youll pay off your mortgage.
Boost Your Income And Put All Extra Money Toward The Loan
A great way to cut the life of your loan is to work on earning more money with the intention of making extra payments on your loan. Consider selling stuff on Amazon or eBay, cutting your impulse purchases and putting saved money toward your loan, or taking on a side hustle on weekends or holidays for extra cash. Even a job that nets you an extra $200 a month can make a big difference in your loan.
Triumph over your loans by using one or more of these tricks to make them shorter and pay less interest. You deserve to keep more of your money!
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Make A Larger Down Payment
When buying a home, consider putting down a large down payment in order to keep your monthly mortgage low. While its best to put at least 20% down, if you arent in an immediate hurry to buy, see if you can set aside even more.
The more you put down on your home, the lower your mortgage will be. And if you put at least 20% down, you wont have to pay private mortgage insurance which will save you quite a bit of money as well.
When Paying Off Your Mortgage Early Works
You might assume that you need to shell out hundreds of extra dollars each month to pay off your mortgage early. The truth is, even a very small monthly or one annual payment can make a major difference over the course of your loan.
Contributing just $50 extra a month can help you pay off your mortgage years ahead of schedule. You dont need to find a way to earn an extra $10,000 a year to pay off your mortgage.
Play around with our Rocket Mortgage® mortgage amortization calculator to see for yourself how a small amount of money can impact your loan. It might surprise you. Most people can manage to save at least a few thousand dollars in interest with a small monthly extra payment. This is especially true if you start paying more on your loan in the early years of your mortgage.
The best candidates for early mortgage payoffs are those who already have enough money to cover an emergency. Youll want at least 3 6 months worth of household expenses in liquid cash before you focus on paying off your mortgage. This is because its much more difficult to take money out of your home than it is to withdraw money from a savings account.
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Decide If Youre In The Right Home
One thing to look at to understand how to pay off your mortgage in half the time is whether youre in the right home.
Selling your current home and downsizing to something smaller or with fewer features is one way to cut your overall payments and free up money to pay extra on your home loan.
While you dont have to sell your home, its an option you may consider if your mortgage is really holding you back.
Ways To Get The Mortgage Monkey Off Your Back Faster
Your home loan is probably the biggest investment you will make in your life, and a debt that most people would like to pay off as quickly as possible.
Buying a home is one of the biggest investments many people will make in their lifetime, and paying back a home loan is similarly one of the biggest commitments.
For people that want to pay off their loan and get out of debt faster, here are 10 easy tips and tricks to get the mortgage monkey off your back sooner.
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Round Up Your Monthly Payments
Round up your monthly payments to the nearest $50 for an effortless way to shorten your loan. For example, if your auto loan costs you $220 each month, bring that number up to $250. The difference is too small to make a tangible dent in your budget, but large enough to knock a few months off the life of your loan and save you a significant amount in interest.
For a potentially even bigger impact, consider bumping up your payments to the nearest $100.
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The Downfalls Of Making Payments Biweekly
It might sound like a perfect plan to pay your mortgage off early just by making payments twice per month rather than once. It doesnt cost you any more money and you cut years off your term. However, there is a catch. Not all lenders credit half payments. If they receive half of your mortgage payment, they may hold onto it until they receive the other half in two weeks. This bypasses the benefit of these extra payments. You dont cut your principal down and you pay the same amount of interest.
Another downside of biweekly payments is the charges some lenders make you pay. Some consider it a service to offer the option to pay biweekly. They get away with it by requiring automatic withdrawal from your bank account for the payments. This way they can charge you for the service. This takes away from the money you save and may not make the extra payments worth it.