The desire to own our homes free and clear is financially healthy. Many benefits arise when paying a mortgage off early. And while paying off your mortgage early may seem like a daunting task; it is more realistic than you think with just a little discipline.
Benefits to paying off your mortgage early.
- You reduce your monthly expenses.
Eliminating a monthly mortgage payment could allow you to retire early and/or save for a more comfortable retirement. If you pay off your mortgage and continue working, depositing what was your monthly payment to a savings account or retirement fund will add up quickly. Are you already retired? Have you wanted to travel, but felt like finances have always been too tight? Imagine how quickly that extra monthly income could accrue in a savings account for a great adventure.
- You have more cash equity if you decide to sell.
If you decide to sell your home later, you will receive all the proceeds from the sale. This could provide the ability to pay for your next home with cash or simply increase your cash reserves.
- You save!
When you pay your mortgage early, you pay the lender less in interest. Over time this can lead to thousands of dollars.
Turn the dream into reality.
- Schedule your payments to debit your account automatically.
Reoccurring electronic payments can help keep you accountable and remove the human temptation to delay action or change your plan when there is a sale on those tools or shoes you like.
- Make one extra monthly payment a year.
Making 13 monthly payments each year will pay in full a 30-year loan in 23 years, a 20-year loan in 16-years and 8 months and a 15-year loan into a 12-year and 8 months.
You can make this bonus payment as one lump payment, possibly after receiving a tax refund or a work bonus. You can also make it easier on the budget by dividing your monthly payment by 12 and adding that amount to your regular monthly payment. For example, if your regular payment is $1200 a month, pay $1300 each month to make the extra payment over the entire year.
- Make payments bi-weekly.
Dividing your payment in half and paying twice a month has a huge impact on accelerating mortgage payoff. Making a payment every two weeks reduces your principle balance more quickly. When your principle balance is reduced, you pay less interest. In fact, it is like making an extra payment each year without paying any extra!
Please note, some loans may not permit bi-weekly payments. Government mortgages such as Freddie Mac and Fannie Mae only accept one payment per month.
- Increase your monthly payment by $100 each year.
If your loan payment is $1200 each month, pay $1300 a month in year two, $1400 in year three, and so on. You may be amazed at how quickly your loan balance drops and the loan is paid off. If $100 seems like too much, start with $25 or $50.
Contact your lender to review your overall financial picture to create a plan that best works for you and moves you come closer to realizing your financial goals and dreams.