How to Pay off Your Mortgage Early: From a Financial Advisor

Paying off your mortgage early can save you money. It reduces the total interest you pay over the life of the loan. Extra payments can lower your principal balance. This can reduce your overall costs and help you pay off your debt faster.

There are several strategies to accelerate your mortgage payoff. Understanding your options can help you choose the best approach for your financial situation. Here are some effective ways to pay off your mortgage early:

Refinance to a Shorter Loan Term

If you currently have a 30-year mortgage, refinancing to a 10- or 15-year loan can help you pay it off faster. Shorter-term loans typically come with lower interest rates, though they also mean higher monthly payments. Before refinancing, check current rates and make sure your budget can comfortably handle the increase in payments.

If you qualify for a lower interest rate, refinancing can lower the total interest you pay. It can also shorten your loan's term.

Make Extra Payments Toward Your Principal

Putting extra money on your loan principal lowers your balance quicker. This also reduces the interest you pay over time. If done consistently, it can shave years off your mortgage. Just be sure to specify to your lender that the extra payments should go toward the principal.

Here are three practical ways to pay extra on your mortgage:

Make Additional Payments Throughout the Year

●      Add a little extra to your monthly payment. Divide your principal payment by 12. Pay that amount along with your regular payment. This results in roughly one extra payment per year.

●      Opt for biweekly payments instead of monthly payments. There are 52 weeks in a year. If you make half-payments every two weeks, you will make 26 half-payments. This is the same as making 13 full payments each year.

Make a Lump-Sum Payment Each Year

●      Set aside 1/12 of a mortgage payment each month. By the end of the year, you’ll have enough saved to make one extra payment without straining your budget.

●      Just one extra payment each year can make a big difference. It could even shorten your mortgage term by years.

Use Windfalls to Pay Down Your Loan

●      When you receive unexpected money, consider using some of it for your mortgage. This money can come from a work bonus, tax refund, inheritance, or side income. Over time, these extra payments can make a big difference in reducing your balance.

Don’t Overextend Yourself

Paying off your mortgage early is a good goal. However, it’s important to balance this with other financial needs. Make sure you save for emergencies.

Pay off high-interest debt. Also, set aside money for future costs like home repairs or retirement. Take a look at your budget and create a mortgage payoff plan that aligns with your overall financial goals.

Sources:

https://www.fidelity.com/learning-center/life-events/how-to-pay-off-your-mortgage-early

Disclosures:

This information is an overview and should not be considered as specific guidance or recommendations for any individual or business.

This material is provided as a courtesy and for educational purposes only.

These are the views of the author, not the named Representative or Advisory Services Network, LLC, and should not be construed as investment advice. Neither the named Representative nor Advisory Services Network, LLC gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. Please consult your Financial Advisor for further information.