If you’ve found some wiggle room in your budget or a little extra cash in your pocket, can you put it towards your mortgage? You can, and it can be a smart way to pay off your mortgage earlier, saving interest along the way. Here’s what you need to know.
How to pay off your mortgage early.
One of the most common ways to pay off your mortgage early is to refinance to a loan with a shorter repayment period. A mortgage refinance revises and replaces your current loan terms with new, often more favorable, mortgage terms. In addition to shortening the life of your loan, you could also use a refinance to switch from a fixed-rate mortgage to an adjustable-rate mortgage (ARM) or from an ARM to a fixed-rate, or to get a more favorable interest rate if the market is right.
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Not ready to refinance? No problem. You could always pay extra on your mortgage each month if your budget allows. Adding a little extra to your monthly mortgage payment can go a long way to helping you pay off your mortgage early because once your interest is paid off, anything extra will go directly toward paying down the principal amount of your mortgage. Try using a free extra payment calculator to get an idea of how soon you could pay off your home loan.
You also have the option of making bi-weekly payments, or making 26 half payments a year rather than 12 whole ones. By splitting your mortgage payment in half and paying it every two weeks instead of one big payment each month, you could make the equivalent of one extra monthly payment toward the principal each year. Not only does that mean saving on interest over time, but you could potentially pay off your mortgage years earlier as well. See how early you could pay off your mortgage with this bi-weekly payment calculator.
Why should you pay off your mortgage as soon as possible?
Did you know that paying off your mortgage as soon as possible could help you save money in the long run? That’s because the earlier you pay off the mortgage, the less you will build up in interest over time. Not to mention, the sooner your mortgage is repaid the sooner you will own the home outright.
Another benefit of paying off your mortgage early is freeing up your cashflow. Once your mortgage is paid off, you can use the money you would’ve typically paid each month for other things like travel, retirement, or anything else you want.
Is it better to pay off mortgage or save money?
The benefits of paying off a mortgage early versus saving money is different for everyone because, after all, none of us have the same financial goals. Paying off a mortgage could help you free up your cashflow and help you save money over time. But choosing to keep your mortgage payment the same and putting any extra money you have into something like a high-yield savings account could also lead to great savings in the long run. What’s right for you may not be right for your neighbors, so seeking out professional advice may be the best first step to making your choice. Talking to a financial advisor can help you gain a better understanding of which option is right for you.
How much is saved by paying a mortgage early?
The amount you could save my paying a mortgage early depends on the amount owed left to repay, the duration left on the loan and how you plan to pay the home loan off early. For instance, a refinance can help you shorten the duration of the loan which can save you on interest over the long run, but you may have to pay closing costs again depending on your new terms. And if you decide to pay extra, you could accelerate the loan term as well as save on interest. Check out this extra payments calculator to get an idea of your potential savings.
Knowing when and how to pay off your mortgage early can feel overwhelming. But our mortgage experts can help you understand your options. Contact us today to start a conversation.
