When you buy your first house, the thought of having a home completely paid off seems like a distant dream. It will take some time, and some diligence in budgeting and smart investments. By doing these tips, you can pay off your mortgage loan much sooner than expected!
Paying an Extra Payment
Try to pay something extra every month and put towards the PRINCIPAL, not a payment (which would include taxes and escrows). I like to say - pay one full payment amount towards principal every year. How about the tax refund you get back from taxes, or a bonus from work? Or divide your payment into 12 and pay that extra amount every month. Eventually you won't even miss this money. Paying down the principal will shorten the loan term.
If you can make bi-weekly payments towards principal, this will result in a quick reduction of your principal balance.
Paying Bi-weekly payments
By making bi-weekly payments you can save thousands of dollars in interest instead of monthly payments. You will hardly feel this, but make a good dent in the principal balance.
Refinance to a shorter loan term
When the rates come back down, refinance to a 2o-year loan or a 15-year loan, but do not take any cash out. By using your home as an ATM, this will only lengthen you mortgage term. By shortening the loan term is will save you money on interest paid.
Try to "recast" your loan
If you have enough equity in your home to show 20% equity, try contacting your mortgage company and see if they will recast your loan. This is almost like a refinance, but no fees. If the bank will do this, it is possible to eliminate mortgage insurance, saving you hundreds, and be able to apply this every month to your principal balance.
Pros and Cons of Paying your Mortgage off Early
Obviously the largest pro is --- NO HOUSE PAYMENT! But, don't forget, you still have property taxes and homeowner insurance, and maybe an HOA payment. By paying it off early, you saved lots on the interest you would have paid. Before you pay off your mortgage, be sure you do not have a prepayment penalty. You can call your mortgage company and see if there is a penalty for prepayment.
By not having a house payment, you can sock money away into investments for retirement. If you do need money down the road, you can always apply for a home equity line of credit. You only pay on this when it is used.
By paying down your principal balance, if/when you want to sell and buy another home, you will have more of a down payment with equity in your home, giving you more options when buying a replacement home.
The con would be your FICO score is based on 3 basics - one mortgage loan, one car loan and two credit cards. When you pay off your home, this will reduce your FICO score, but not by much.
By paying your home off early, gives you peace of mind, you have money to do other things like remodeling or traveling. It reduces the financial stress by having a monthly payment and can enjoy a comfortable lifestyle.
Have questions - would love to talk with you - Joan Cox - 720-231-6373