The thought of paying off your mortgage can be daunting. Seeing the multi-year payment plan and mortgage debt has become stressful for many homeowners. Although it may seem like a long and difficult process, there are things you can do to pay off your mortgage early. In this blog post, we will discuss some of the quickest and most effective methods.
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Make Accelerated Bi-Weekly Payments
One way to pay off your mortgage early is by making accelerated bi-weekly payments with payments of more than the minimum. This strategy will help you to pay off your mortgage years in advance and save thousands of dollars in interest payments.
The difference between accelerated bi-weekly and monthly is that with accelerated bi-weekly you make 26 payments a year, or the equivalent of 13 monthly payments. This extra payment is applied directly to your principal, which reduces the amount of interest you pay and the length of your mortgage term.
If you are looking for the quickest way to pay off your mortgage, making accelerated bi-weekly payments is the way to go. You will be saving yourself a lot of money in the long term. This is because you will be paying less interest on your loan overall. However, it needs to be paired with paying off more than the minimum requirement.
Let’s see what the math looks like if you were to adjust your payment plan to an accelerated bi-weekly payment rather than a monthly payment.
With a mortgage of $100,000, over the 30-year amortization period, you would have made 656 accelerated bi-weekly payments of $266.85 and one final payment of $64.77. The total paid in principal would be $100,000 and $75,115.31 in interest, for a total of $175,115.31.
By the end of the amortization period, with your selection of an accelerated bi-weekly plan, you save $17,013.33 more in interest than if you had selected a monthly payment plan.
Now you might be wondering, “Well $17,013.33 is great! But how can I make it so that I can pay it off sooner while still saving money on interest rate?” That’s an excellent question. Keep reading because we go over how we can combine this strategy with another one to synergistically pay off your mortgage even sooner.
It has to be accelerated bi-weekly if you want to see a difference.
To make bi-weekly payments, you can simply divide your monthly payment in half and pay that amount every two weeks. This will ensure that you are making 26 payments per year instead of 24 with regular bi-weekly payments.
If you’re looking for an easier way to make bi-weekly payments, you can sign up for a special payment plan through your mortgage lender. This will typically cost you a small fee, but it will automate the process and make sure that your payments are made on time.
A bi-weekly payment option like this can help keep you consistent with your mortgage payments, but will not save you as much money in the long run as making accelerated bi-weekly payments.
Pay Down Your Mortgage with A Yearly Lump Sum
Another way to pay off your mortgage early is by making lump-sum payments. A lump-sum payment is a one-time extra payment that you can make on top of your regular monthly payments. This will help pay down your principal faster, which in turn will save you money on interest payments.
You can make a lump-sum payment at any time and as often as you want, but there are a few things to keep in mind. If you have a fixed-rate mortgage, making a lump-sum payment will not change the term of your mortgage but the principle will be lower.
If you have a variable-rate mortgage, making a lump-sum payment will lower your monthly payments because you are paying down your principal faster. This could be helpful if you are trying to get your monthly payments down to a more manageable level.
As you can see a lump sum payment in either scenario is beneficial, but the key is to make sure you do not pay any penalties for prepaying your mortgage. Some lenders will charge a penalty if you pay off your mortgage early, so be sure to check with your lender before making any extra payments.
What does the math say?
Making lump-sum payments can help pay off your mortgage early because it reduces the amount of interest you pay over the life of your mortgage. If you make a lump-sum payment of $5000 each year on a $100,000 mortgage with an interest rate of 5%, over 11 years you would pay $29,650.92 in interest.
That’s right, only 11 years rather than 30. A lump sum of $5000 per year would reduce the length of your mortgage by 19 years!
But what if you can’t pay an extra $5000 per year? That’s understandable. Let’s see what the math looks like if we were to only pay an extra $1200 yearly. Remember that is only $100 per month.
In this scenario, you would pay $60,946.55 in interest, and take you 21 years to pay off the mortgage. Not as fast as if you were to pay $5000 but you’d still pay it off 9 years sooner!
If you didn’t pay off any extra, your total interest would be $92,128.64 and it would take you 30 years to pay off.
Key Takeaway: By making lump-sum payments on top of your regular monthly payments, you can pay off your mortgage early and save a lot of money in interest payments.
If you can raise your income by a few thousand dollars per year, maybe through a side hustle, you can pay your mortgage much faster than the standard 30-year timeline. You can also use your tax refunds, get a bonus at work or any other type of extra money that comes in during the year to pay down the debt.
Another strategy would be to save a few thousand per year. Rather than spending $4000 on a yearly vacation, try and only spend $3000. Instead of spending that money, you can pay it towards the mortgage. The extra payments will go directly to the principal of the loan.
But what if a lump sum payment is still too difficult? Luckily there’s another option that provides similar benefits.
Make Larger Monthly Payments
One way to pay off your mortgage early is to make larger monthly payments. This can be difficult for some people, but it can save you a lot of money in the long run.
Larger monthly payments are similar to a yearly lump sum payment except it may be easier psychologically to save a few hundred dollars per month rather than letting go of a few thousand per year.
Making larger monthly payments has its benefits including:
- You will pay less interest on your loan overall
- You will pay off your mortgage faster
- You can save money in the long run
Let’s see the math on what would happen if you were to pay off more than the minimum monthly mortgage payments.
That’s the same amount as the yearly lump sum payment of $1200 per year, except it would take you 3 months extra to pay off. That’s not a huge difference, but it shows that a yearly lump sum can be slightly more advantageous.
However, if the monthly option works better for you that is still very beneficial. The main point is to just pay off more than the minimum as it makes a significant difference in the total length of the loan.
refinancing
Refinancing is a term used to describe the process of taking out a new loan to pay off an existing one. This can be a great way to save money and pay off your mortgage early. When you refinance, you can choose a lower interest rate and monthly payment. This will help you pay off your mortgage early and save money in the long run.
Advantages of Refinancing
If you’re looking to pay off your mortgage early, refinancing may be a good option for you. When you refinance, you take out a new loan with a lower interest rate and pay off your old mortgage. This can help you save money on interest and pay off your mortgage faster.
One of the most important advantages of refinancing is that it can lower your monthly payments. This can free up money each month that you can use to pay off your mortgage more quickly. It can also help you pay less interest over the life of your loan.
Another advantage of refinancing is that it can allow you to switch from an adjustable-rate mortgage (ARM) to a fixed-rate mortgage. This can protect you from rising interest rates and make budgeting for your mortgage payments easier.
When you refinance your mortgage, you may be able to:
- Lower your monthly payments.
- Save money on interest.
- Switch from an adjustable-rate mortgage (ARM) to a fixed-rate mortgage.
If you’re considering refinancing, be sure to compare offers from multiple lenders to get the best deal. Be sure to also consider the fees associated with refinancing, as these can add up over time and offset any savings you may realize.
Disadvantages of Refinancing
Refinancing does however come with a few disadvantages that you should be aware of. Some of these disadvantages include:
Rising interest rates: If interest rates rise after you refinance, you may end up with a higher monthly payment than you had before.
Shortening your loan term: If you refinance to a shorter loan term, you may end up paying more per month over the life of the loan.
Front-loaded interest: In the first few years of your mortgage, most of your payment goes toward interest rather than the loan principal.
Costs and Fees: There are a few things to keep in mind if you’re considering refinancings, such as the fees associated with refinancing and the potential for extending the term of your loan. But overall, refinancing can be a great way to save money and pay off your mortgage early.
Can You Refinance A Mortgage With Poor Credit?
Bad credit can make refinancing a home loan more difficult and it may be impossible to refinance if your credit score is too low. If you have poor credit, you might still be able to qualify for a government-backed mortgage program like FHA or VA loans. Talk to your lender about your options if you have bad credit.
Is Refinancing Right for You?
To decide if refinancing is the right move for you, it’s important to consider your financial goals and objectives. Are you looking to lower your monthly payments? Save money on interest? Pay off your mortgage early? Switch from an adjustable-rate mortgage (ARM) to a fixed-rate mortgage?
Once you know what you want to achieve, compare offers from multiple lenders to find the best deal. Be sure to also factor in the costs of refinancing, as these can add up over time and offset any savings you may realize.
If you’re looking to pay off your mortgage early, refinancing may be a good option for you. However, if you have poor credit, it may be difficult to qualify for a refinance loan. Be sure to compare offers from multiple lenders and factor in the costs of refinancing before you make a decision.
It’s important to weigh the advantages and disadvantages of refinancing before making a decision. This will help you determine if refinancing is the right choice for you.
If you’re interested in learning more about refinancing, contact a mortgage lender today. They can help you compare rates and terms to find the best option for you.
The Accelerated Bi-Weekly Bonus Method
This strategy is a combination of accelerated bi-weekly payments and the concept of paying more than the minimum.
Let’s see what the math shows…
Using the same metrics of a 30-year mortgage with a $100,000 in principle at a 5% interest rate, here are the costs and time savings.
You would have made 384 accelerated bi-weekly payments of $366.85 ($266.85 + $100.00) and one final payment of $190.20. You would have paid $100,000 in principal and $41,058.81 in interest, for a total of $141,058.81. That’s a savings of $34,056.50 in interest.
You would have paid off the mortgage 125 months sooner than if you had the same mortgage with no prepayment. That means it would only take you 12.5 years to pay off your mortgage rather than 30 years!
The accelerated bi-weekly bonus method is the most difficult to execute because it requires more frequent payments and larger payments. However, if you can make this work, it can be the most effective strategy.
If you are even able to add a yearly lump sum payment on top of this strategy, you could pay your mortgage off even sooner!
The Quickest Ways to Pay Off Your Mortgage (Conclusion)
There are a few things to keep in mind if you’re considering refinancing your mortgage. Refinancing can be a great way to save money and pay off your mortgage early, but it’s important to compare offers from multiple lenders and factor in the costs of refinancing before you make a decision.
If you’re looking to pay off your mortgage early, the accelerated bi-weekly bonus method may be the best option for you. However, this strategy requires more frequent payments and larger payments, so it’s important to make sure you can commit before you decide to go this route.
Contact a mortgage lender today to learn more about refinancing and find the best option for you. Thanks for reading, this should give you some ideas on how to quickly pay off your mortgage. Save this article for later by bookmarking it in your browser so you don’t forget these strategies!
