Paying off your mortgage early comes with a variety of benefits like eliminating debt, saving money on interest payments, and increasing your cash flow! Your mortgage payment is likely to be your highest monthly payment amount.
Keep reading below where we cover some tips and strategies for early payoff. Take these into consideration to help you achieve your goal of paying off your mortgage early.
Benefits of Paying Off Your Mortgage Early
The sooner that you pay off your mortgage, the less interest you’ll have to pay on the loan. This can save you thousands of dollars over the course of your loan regardless of your chosen term!
Using your freed-up funds for something else lets you reinvest it in other areas of your finances. Whether it’s building up your savings, home improvements, or putting more into your retirement fund — your options are endless.
With a fully paid-off mortgage, you’ll own your home outright. You’ll be able to easily tap into your home equity to take out a loan if needed. And, in most cases, you’ll have access to more cash than you would if a mortgage was still attached.
4 Ways to Pay Off Your Mortgage Early
There are a few ways that you can pay off your mortgage early. Find one that works for you and your situation.
1. Make Large, Lump-Sum Payments
If you suddenly find yourself with a large amount of unexpected cash from an inheritance, a bonus at work, a tax refund, or from selling assets, reinvesting this into your mortgage principal can significantly cut the lifetime of your loan.
When you apply for a mortgage loan, be sure to ask and understand if there are any prepayment penalties. But you should also keep in mind that penalties typically don’t apply to extra payments but only paying off the total remaining balance of the loan.
Making a lump-sum payment can then help to make a significant dent in how much you owe, without paying a penalty. Be sure to specify that you want these funds applied to the principal amount when you make the payment.
Refinancing makes the most sense if you can shorten the loan term or get a lower rate. Here at Belco Community Credit Union, you can work with a local representative to tailor a refinance plan to your specific financial situation. We’ll help you decide if it’s the best time to refinance for your early payoff goal.
Moving over to a lower rate loan will cut the total amount that you owe, both each month and over the full life cycle of the loan. On the other hand, shifting to a 15-year mortgage can increase your monthly principal payment amount, but will usually come with a lower rate than 30-year loans.
Recasting your mortgage is a similar process to refinancing. With this strategy to pay off your mortgage early, you’ll keep your existing loan instead of taking out a new one. You pay a lump sum toward the balance and then your amortization schedule is adjusted to reflect the new balance.
This can be a great option to lower your monthly mortgage payment while keeping the same interest rate and original loan. The fees to recast are typically significantly lower than refinancing.
4. Make Extra Payments
You might be wondering how splitting your payment into bi-weekly rather than monthly can help you. Over a full year, those extra investments will add up to be a whole additional month of mortgage payments.
When you take that into account over the years of your loan, you’ll still be shortening the amount of time it takes to completely pay it off. This means that less interest is accruing every year, making your final repayment amount even smaller.
A bonus tip here: round up that bi-weekly payment to the nearest $10 if you can! You’re likely to not even notice these few extra dollars difference in your budget. But over time, it will still make a difference!
Pay Off a Mortgage Early With Belco Community Credit Union
Now that you better understand the benefits of paying off your mortgage early, apply with us today for a new home loan! Early payoff tips are great to know whether you’re a first-time homebuyer or a seasoned professional. Click below to start your home loan application with us today!