Many people have a goal of paying off their mortgage early, which is great, but not always feasible or the best decision for everyone. For instance, homeowners with low mortgage rates may decide putting their extra money toward a retirement plan is a more financially savvy move than paying down their mortgage quickly.
There are a number of valid factors that can come into play when deciding if it’s the best decision to pay off a mortgage early, however, there are many who make it a personal goal to get their mortgage paid off as soon as possible. If you fall into that category, these tips are for you!
1. Shorten your mortgage term
Refinancing your mortgage with a 15-year mortgage term can help you pay off your loan faster under certain conditions. It’s important to look at the whole picture when making this type of decision. How long do you have left on your current loan, will your new interest rate be higher or lower than your current interest rate, and do you have the funds to cover all of the closing costs associated with a refinance? Once you answer those questions you can decide your next move.
2. Put extra funds toward your mortgage
Let’s say you receive a bonus or a nice tax refund that allows you to pay a large sum towards your loan. Those additional payments on the principal can help cut the total interest on the loan.
With irregular additional payments, however, it will be difficult to predict your mortgage payoff date.
3. Make an extra payment every year
A great way to make one extra payment a year is to save 1/12 the amount of your monthly payment each month and after the 12th month make the extra payment.
This doesn’t tie up the extra money in case an emergency occurs and you need the saved funds.
4. Pay more each month
Instead of waiting until the end of the year to make an extra payment, you can pay more toward principal each month.
Consulting your financial advisor and loan provider is key when making these type of financial decisions and deciding to pay more aggressively.