7 Ways To Pay Off Your Mortgage Years Early

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Owning a home is one of the hallmarks of the American Dream, but most people don’t actually own the home they live in. In fact, less than 40% of homes were mortgage-free in 2017, they said American Housing Survey by the US Census Bureau.

Having your home free and uncluttered allows you to save, invest, and achieve other financial goals. Understanding the many ways to get a mortgage prepaid can help you take meaningful steps to achieve this goal.

How can you pay off your mortgage early?

For many homeowners, a 30 year mortgage is standard. But the chances that families will stay in a house for anywhere near that long are slim.

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According to Attom Data Solutions, homeowners stay an average of eight years before selling. U.S. Homes Sales Report for the First Quarter of 2019. However, there are some advantages to paying your mortgage off early, such as: B. Interest savings.

“Paying back your mortgage can speed your path to real home ownership and save you from paying interest over time,” said John Pataky, executive vice president and chief consumer and commercial banking executive, TIAA Bank.

If your lender doesn’t charge any fees Prepayment penalty and you want to pay off your 30 year mortgage in 10 years or less, here are some great starting points:

Add a little more to your monthly payment. When you start a mortgage, most of your payment is used for interest. All additional payments are borne by your client.

For example, let’s say you have a $ 100,000 fixed-rate mortgage with a 30 year term at 4.5% and add $ 100 to your usual $ 500 monthly payment. You’d pay off your mortgage eight and a half years early and save more than $ 26,300 in interest.

Pay more often. If you make half of your monthly payment every two weeks, you will get an extra payment every year.

If you did this with the same 30-year fixed-rate mortgage, you’d cut your loan term by five years and save around $ 14,500 in interest.

Remember that for two months a year you make three half payments. Make sure your budget is not too tight.

Make additional payments whenever you can. Jackie Beck, creator of the Pay Off Debt app, and her husband paid off their $ 95,000 mortgage in less than three years. Since the two earned more, they neither spent nor borrowed more money.

Instead, Beck and her spouse put on extra cash for their mortgage, initially only $ 35 a month and then more. At one point they were so eager to pay off their loan that they made eight payments in a month.

Make one additional payment each year. This method offers roughly the same savings as a half payment every two weeks, but requires less labor. When you make the payment doesn’t matter. You can pay at the end of the year or wait to get a tax refund or bonus.

Refinance your mortgage. If you can refinance your mortgage With a lower interest rate, your new loan will likely have a lower monthly payment. But if you make the same payment, you can cut your mortgage by years and save thousands of dollars in interest.

Another strategy is to refinance your mortgage into a shorter term loan. This can increase your monthly payment, but it ensures that you will pay off your debts faster and with less total interest.

Don’t get bogged down in small pitfalls. Whenever you get a work bonus, tax refund, or cash gift, it should be added to your mortgage instead of anything else. How much time and interest you can save varies, but a few hundred dollars every now and then add up over several years.

Cut down on expenses and apply the savings. If your budget allows, you can turn small changes to your spending habits into big savings. A few options: switch to a cheaper cell phone plan, cut the cord, or skip the vacation. Then use the money saved to make additional payments on your loan.

Living a frugal lifestyle can be difficult right now, but it can be rewarding if you want to be out of debt.

Is prepaying your mortgage a good idea?

Living mortgage-free can be an enviable goal. But mortgage prepayment is not the best use of money for everyone.

“I think the decision to pay off a mortgage depends on a variety of factors,” said Marguerita Cheng, CEO of Blue Ocean Global Wealth in metropolitan Washington, DC they retire or within one to five years of retirement Retirement, depending on your cash flow, the tax status of your investments and the tax bracket. “

Here are a few situations when it can be useful to focus on other financial goals:

You have higher interest debt. If you have high-interest credit card or student loan debt, reduce this debt before you tackle your mortgage early on, says Cheng.

By reducing debt at higher interest rates first, you can save more money overall. Your mortgage may have the lowest interest rate of any debt and could be one of the last to pay off.

Make sure that additional principal payments for debt aren’t at the expense of building a decent rainy-day fund or conveniently paying for usual expenses, Cheng says.

“While I don’t want customers with large mortgage balances to retire, the downside is that customers need cash flow,” she adds. “It’s nice to have a house that you have free and free, but you still have to buy groceries, put gas in your car and live your life.”

Your employer offers a 401 (k) match. If you have a 401 (k) or similar retirement savings account through your employer and it offers appropriate contributions, you will get the maximum employer match before paying off high interest debt.

For example, let’s say you pay $ 500 a month and your employer deposits $ 500 – you get a 100 percent return on investment. Just keep in mind that some 401 (k) plans require you to stay with your employer for a specified period of time before you have your employer contributions.

You want to help your kids pay for college. Put cash aside in a 529 college savings plan can make the university experience more affordable. If your child pays for their studies themselves, you can skip this.

You don’t have any Emergency fund. Owning a home can be much more expensive than just paying the monthly mortgage. Maintenance and repairs can be expensive and in some cases unexpected.

Set aside savings of three to six months to avoid surprise expenses that lead to debt. Try to build a buffer of a few thousand dollars before you focus on paying off your mortgage.

You are satisfied with the investment risk. Stock and other financial markets are volatile. When the markets are strong, your investments will likely make much more money than you pay in interest on your mortgage. But if your investments are losing money, it would have been better to put that money on your mortgage.

The key is to ask yourself whether you are more comfortable with the risks and rewards of an investment rather than paying off debt.

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