Most of the ways to pay off mortgage early are quite simple. If you're approached by a finance company that wants you to pay in order to learn the secrets behind paying off your mortgage early, you should know that many times they aren't telling you anything you couldn't figure out on your own.
Extra Payments
One of the easiest ways to pay off mortgage early is to simply make extra payments. Adding even relatively small amounts to your mortgage can shave years off your total interest obligation. Be sure to specify to your lender that any extra payments you send in should be applied toward your principal balance as opposed to interest or the escrow account.
Monthly Extra Payments
You don't have to add a huge amount of money to your monthly mortgage payment in order to make a positive financial impact. You can use a mortgage calculator to find out the potential savings for rounding up your monthly payment. For example, on a mortgage loan of $135,000 amortized over a thirty year period, adding $100 a month will result in your mortgage getting paid off approximately eight years earlier than if you had simply made the scheduled payments.
Extra payments lower your principal balance, and therefore you wind up paying less interest over time. As anyone who has ever had a mortgage loan can tell you, interest charges are a huge part of what you pay when you make a payment. The less interest you have to pay over time, the better.
Large Chunks of Principal
If you are fortunate enough to receive a substantial amount of money with which you have no other plans, you may want to consider putting part or all of it toward your mortgage as a principal payment. This can have more of an impact than you realize; using the same example as above of the $135,000 mortgage loan, making a one-time $5000 principal payment around the middle of the amortization term will eliminate approximately three years off the loan.
Consider putting tax returns, work bonuses, and other substantial amounts of cash toward your mortgage in order to pay it off faster. Some financial experts advise against paying extra toward your mortgage if you have a large amount of unsecured debt, but it's up to you to decide what your priorities are.
Pay Twice a Month
You can enroll into a payment plan which allows you to pay your mortgage payment twice a month. You pay the same amount that you would have paid otherwise, but since the payment is divided into two you actually wind up paying less interest overall and pay the loan off faster.
Some companies charge a fee to handle this payment plan for you, but you might be able to handle the logistics of this by yourself. You will want to make sure that your lender allows this type of payment plan before you sign up. If you are going to pay a company to handle the payments for you then be sure the cost you pay is far less than the financial benefit you will gain.
Refinance Loans as Ways to Pay Off Mortgage Early
If you are only a few years into a thirty year mortgage you may want to consider refinancing to a shorter term, such as a fifteen or ten year amortization. Not only will your mortgage loan get paid off much faster, but the total amount of interest you have to pay will be reduced greatly. Think twice before refinancing to a loan that has a higher interest rate or exorbitant closing costs.
Lender Programs
Many lenders offer special programs which creatively utilize various methods in order to get mortgage loans paid off early. Inquire with your lender about any programs offered which allow you to link your checking account directly to your mortgage loan. These programs are not for everyone, so make sure you completely understand the details behind the program before signing up.
