Paying off your home earlier than your set loan has you paying it off can be a particularly daunting thought. There are so many nuances to the mortgage market that may influence your decision either way. However, if you are thinking that it might be a possible option for you for whatever reason, perhaps you should consider it.
Why Should You Pay Off Your Mortgage Early?
It may seem like this would be a straightforward answer, but the world of loans is quite complex. When you acquire a mortgage on a house, your payments go both towards the principal of the loan and the interest on the loan. Typically, you will be paying most of your interest in the early years of your mortgage and more towards the principal later on. While adding additional funds to your payments may help lessen the total interest paid over time, that may not be the best option for you or your family. Perhaps refinancing your home utilizing refinance rates Utah could help you achieve that earlier feeling of mortgage freedom! If you are interested in reaching this sort of goal, then here are some great tips.
1. Refinance Your Home With a Shorter Term Loan
This is a very popular option among people looking to pay their debt off more quickly. You may even get offers in the mail proposing that you try this avenue. In order to refinance, you will need to talk to your mortgage company in order to see what your options are. If your income has recently increased or stabilized, then there is a good chance that you would be a perfect candidate for a refinanced loan. This would probably mean that your mortgage company would increase your monthly payment in order to shorten the time frame of your loan. It might look like your thirty year mortgage turning into a fifteen year mortgage. This is the option for you if you still want to continue building good financial habits and paying that mortgage every month but knowing that there is a quicker and less expensive overall end in sight. If the monthly burden of more money on your payment is unrealistic, then this is not a good choice for you.
2. Switch To a Biweekly Payment
Biweekly payments are another popular option for those wanting to take advantage of utilizing their money and building good, stable financial habits. This would mean that rather than paying your mortgage payment once a month, you would pay it every two weeks. For example, if your mortgage payment was two thousand dollars a month, you would switch from paying that lump sum once a month to paying one thousand dollars every two weeks. It is basic math and understanding that there are fifty-two weeks in a year which would mean that your biweekly payment schedule ends up with you making thirteen full mortgage payments a year rather than the typical twelve. It is essentially the same impact-wise as adding an additional payment, but without the mental burden of gathering up that extra lump sum at some point during the year.
3. Pay Down the Principal
When you acquire a mortgage on a home, you are agreeing to eventually pay off the principal amount of the loan plus interest. The principal is what the actual cost of the loan on your home was. For example, if you put down fifteen thousand dollars on a one hundred thousand dollar home, your loan’s principal amount would be eighty five thousand dollars. This is what you will eventually pay back to the company that loaned you the money (unless they sell your mortgage, which is a whole other process that does not affect the principal of your loan). You also will have to pay that company interest which is based on your interest rate. This is subject to change and can also change when you refinance, but at the end of it all, your principal is the big lump sum that you have to pay off and will never change its amount. Paying down your principal early will actually lead you to pay less money in interest overall, so this is a good option if it makes sense for you. You can do this by adding additional funds to your monthly (or biweekly) payment and designate that it go directly to your principal amount. This is sure to lessen the amount of time your mortgage lasts.
4. Utilize Your Big Earnings
Every now and then, you may find yourself with a windfall of cash. Perhaps you sadly acquired a lump sum in a loved relative’s estate. Maybe you sold an old car for a high price. Perhaps you even had a large asset that you needed to unload for some reason which gave you a sizable chunk of cash that you normally do not have access to on a monthly basis. You could go out and buy something extravagant, but a better thing to do would be to utilize this opportunity to pay down your principal on your loan. Opportunities like this are typically rare and while it may be tempting to go crazy, if you are truly committed to paying off your home, this would be a fantastic option.
5. Act As If You Have Refinanced
If you do not logistically qualify for refinancing for whatever reason, you can act as if you have and treat your payments accordingly. Do some searching and math online or talking to a trusted financial advisor and figure out what your refinanced monthly payment price might have looked like. Then, make a commitment to pay that increased amount every single month. Although you may not have a preferable rate, you will still definitely pay your loan down far more quickly than thirty years. If you are not one to seek out disciplined financial habits and actions, then this option may not work for you. Some people need real world accountability in order to follow through, and there is nothing wrong with that. However, if you are more of a creative, do it yourself kind of person, then consider this option.
6. Sell Your Home (And Go For Something Smaller)
Okay, this option is definitely a reach. And it is blatantly simplistic. But, for some, this is a great option. If you have a thirty year mortgage on a large home and you find that you do not need all of the space, you can utilize the fact that you have accrued equity in your home to sell it, release yourself from that large mortgage, and pay for a smaller home in full. It is a bit indirect, but if your local real estate market is hot right now, then it just might be the perfect idea. Plus, you will have the always fun opportunity of house hunting. You might even discover that you need less furniture, have smaller monthly utility bills and have less space to clean.
There are so many different reasons why you might want to pay off your home. Perhaps you want to own your home outright, or maybe you dread the financial commitment hanging over you. No matter what your reason for your decision, you now know just how many simple ways there are for you to pay down that loan early. It may end up being the best decision you have ever made.