How to Pay off your Home Mortgage Sooner

Paying off your home mortgage early may be the single best investment you will ever make. Aside from the financial benefits of owning your home, the peace of mind may be as valuable -there is just incredible comfort in knowing that Home Sweet Home will always be there to shelter you and your loved ones.

There are many ways to pay off your mortgage early, and the method you choose of course depends on your individual situation. Factors to consider are how stable your job is, how many years your mortgage has to run and what kind of mortgage you have. Other factors include what other obligations you have or anticipate, such as college tuition.

How to pay ahead

For straightforward 15 or 30 year mortgages, the easiest way to pay off a mortgage sooner is to simply make your regular monthly payment plus an additional amount. (This assumes that your mortgage does not have a prepayment penalty.) If you have an amortization printout from your mortgage holder, you can look ahead by one of more payments and add that principal amount. Or you can simply round up -say a regular payment of $567 becomes $600.

Perhaps you have just finished paying off a car loan. First, congratulations! Now rather than blowing that amount, consider sending it to your mortgage company each month. After all, you’re already used to living without this amount, so you won’t feel too deprived. Or maybe you are getting a nice raise. Plan to put at least part of that toward paying off your mortgage sooner.

If the idea of paying extra each month doesn’t appeal to you, consider making lump sum payments quarterly or annually.

Other tips

The more money you can pay ahead early in the mortgage, the better. That’s where most of the interest is loaded. It’s pretty discouraging to make those big payments each month and at the end of five years or so realize that your principal has barely changed. All that money you scrapped together each month went to pay interest. The bank thanks you.

If you can refinance at a lower rate and for a shorter term, say go from a 6% 30-year loan to a 3% 15-year loan, you will save a ton of money. A quick calculation using an online mortgage calculator will illustrate just how much. Just take into account how much it will cost to get a new, lower interest loan. You may be better off to put that sum toward paying off the original.

Another thing to consider if you plan to refinance: if your credit history is shaky, work to improve that score before you apply for a new mortgage. You will get an even better deal if your credit score is good.

Many people prefer to stick with a 30-year mortgage simply because they have some flexibility, even though they intend to pay it off in 15 years or less. 30-year monthly payments are lower though over the life of the loan you will pay thousands more in interest.

If you need further motivation, plug your current figures into any online calculator and see just how much you will save in interest over the course of your loan by paying a modest amount ahead each month. When you realize you can save enough to put a kid through college or retire a year or so sooner, it’s pretty motivational.