April 10th, 2019 8:56 AM by Jackie A. Graves, President
Today, nine out of 10 homebuyers are choosing a 30-year
fixed-rate mortgage. For many, the stability of fixed payments over the life of
the loan makes financial sense, but have you ever wondered how you can pay your
mortgage off faster?
a few changes in your monthly budget and you may be making your last mortgage
payment earlier than you expect.
1. Pay extra on your loan principal
mortgage payment consists of a principal payment and interest payment. Your
interest payment is calculated based on your unpaid principal balance. When you
make extra principal payments, you are lowering the amount you're paying
interest on. As a result, paying down your principal will save you on the total
interest paid over the life of the loan while also reducing the total time it
takes to pay off your mortgage.
where to get that extra money from?
Use your extra cash:
Did you receive a tax refund this year? What about an end
of year bonus? Consider putting that extra money towards your principal.
Designate a little extra on each mortgage payment to be put towards your
principal. An easy way to do this is rounding up your payments. For example, if
you have an odd payment amount such as $1,123 per month, round it up to $1,200.
If you are
thinking about refinancing your mortgage to lower your interest rate, also
consider shortening your term to a 15-year or 20-year term. Again, it's an
opportunity to pay off your mortgage more quickly with less interest paid over
the life of the loan.
Be aware that
with a shorter term, your monthly payments are likely to increase, if that
seems daunting, refinancing may not be the best fit for your budget. Be sure to
discuss refinancing options with your lender who can help you find the options
that best suit your goals. To get a sense of how much it may cost to refinance
your mortgage, check out our refinance calculator.
3. Switch to a biweekly payment
homeowners pay their mortgage once every month. Instead, ask your lender if you
can make two half payments, every two weeks. This shouldn't change your monthly
budget too much, but with 52 weeks in a year this schedule will result in 13
full-size payments each year instead of the standard 12. If, for example, you
have a $250,000 30-year fixed-rate mortgage at an interest rate of 4.5%, making
biweekly payments would allow you to pay off the loan almost five years early.
payments will add up. Check your amortization
schedule to see the amount of principal and interest you've
paid, and use our calculator to estimate how extra payments
may impact your loan. For more information on owning a home, visit My Home by
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