Tips for Paying Off Your Mortgage Early

Ready to put an end to those mortgage payments? Look no further!

Paying off your home before your loan’s term is possible – under the right circumstances. You need to make sure it’s financially beneficial for you to pay off your mortgage early and that you do it in a way that saves you money.

First, make sure your high interest rate credit cards and loans are paid off, recommends Karylle Wike, Senior Vice President, Mortgage Lender with Town and Country Bank. They cost you more than your mortgage interest (which is likely your lowest-rate debt) and you can deduct mortgage interest from your taxes, but not the interest on loans and credit cards.

Next, you’ll want to have a retirement fund established that you regularly contribute to.

Along with paying off any outstanding debt, make sure you have three to six months’ worth of expenses saved in an emergency fund. You’ll always want to play it safe for any unexpected expenses.

Finally, make sure your bank or lender doesn’t charge penalties for paying your mortgage off faster than planned and ask your financial adviser if early payoff is in your best interest financially.

If you’ve done all of that, here are ways to pay off your home faster:

• Refinance at a better rate with a shorter term. “The rule of thumb used to be that you needed the interest rate to drop 2% in order to make refinancing worthwhile. Now, with the amount borrowed typically much higher, a 1% drop in interest rates might be enough to save you money,” according to Debt.org’s article, “How to Pay Off a 30-Year Mortgage in 15 Years.” Make sure the costs to refinance aren’t greater than the expected profit.
• If your interest rate is 4% or less, you can ask your lender how to pay your mortgage off faster—without refinancing and incurring the costs, Wike says. If you have a 30-year mortgage currently, you could ask your lender to figure payments at your current rate of 4%, with a 15 or 20-year term, and make those payments monthly. That will allow you to pay off much earlier.
• Pay one extra principle and interest payment a year by adding more to your monthly payments or sending an extra check during the year. If you have a $100,000 loan and do this, you would pay off your mortgage roughly 4 years ahead of schedule.
• Ask your lender/mortgage company if they’ll let you make bi-weekly payments. If so, pay half of your typical monthly payment every two weeks. That allows you to make 26 payments per year. That’s 13 payments instead of 12 payments in a calendar year, which allows you to pay your mortgage off between 5 and 7 years early.
• If you get unexpected money, like a tax refund or inheritance, use it for your mortgage. Include a note with the check stating that you want it applied to the principal.

You can save tens of thousands of dollars in interest by paying off early, but talk to your financial adviser to make sure that’s the best plan for you. In some cases, you might be better off taking the extra money and investing it.

Want to know more about your mortgage and payments? Contact us online at TownandCountryBank.com or call 1-866-787-3100.