According to the Urban Institute, more than 26.9 million Americans own their home outright. Some bought their homes with cash, while others whittled away at their mortgages year after year until they were gone.
Two-thirds of American homeowners had to take out a mortgage to finance the purchase. There are some simple ways to join the ranks of debt-free homeowners and make your last mortgage payment sooner rather than later.
How to Pay Off your Mortgage Early?
Each time you pay extra on your mortgage, more of each payment after that is applied to your principal balance. But first...
Check with your mortgage company . Some companies only accept extra payments at specific times or may charge prepayment penalties.
Include a note on your extra payment that you want it applied to the principal balance—not to the following month’s payment.
1.Biweekly Mortgage Payments
The concept of a biweekly mortgage payment is pretty simple. You make half of your mortgage payment every two weeks. That results in 26 half-payments, which equals 13 full monthly payments each year.
That extra payment can knock eight years off a 30-year mortgage, depending on the loan’s interest rate.
How to Set Up a Biweekly Mortgage Payment
· Locate the principal and interest portion of your payment on your monthly statement and simply divide that number by two. For example, if the principal and interest portion of your payment is $1,500, your new biweekly mortgage payment is $750.
· Don’t forget to include the tax and insurance portion of your payment each month. In this $1,500 payment example, the $750 biweekly payment only covers principal and interest. You’ll have to pay the tax and insurance portion of your payment in addition to that.
· Find out how or if your mortgage company handles biweekly mortgage payments. Some lenders will process biweekly payments while others refuse to accept partial payments at all. In any case, do not pay a fee to initiate a biweekly mortgage plan.
2. Extra Payments
· Every dollar you add to your regular payment each month puts a bigger dent in your principal balance—and you don’t have to double-down to make a difference. Adding just one extra payment each year knocks years off your mortgage!
· Make just one extra payment a year and You’ll pay your mortgage off 11 years early,
3. Refinance—Or Pretend You Did to a 15-year fixed-rate mortgage
· With a payment that’s no more than 25% of your take-home pay. You’ll pay much more in interest on a 30-year mortgage—refinance a longer-term mortgage into a 15-year loan. Or, if you already have a low interest rate, save on the closing costs of a refinance and simply pay on your 30-year mortgage like it’s a 15-year mortgage. The same goes for a 15-year mortgage. If you can swing it, why not increase your payments to pay it off in 10 years?
4. Downsize
· Downsizing your house could be a drastic step, but if you’re set on getting rid of your mortgage, consider selling your larger home and using the profits to buy a smaller, less expensive home.
· With the profits from selling your bigger house, you may be able to completely pay cash for your new home. But even if you have to get a small mortgage, you’ve succeeded in reducing your debt. Now your goal is to get rid of that debt as quickly as possible. The smaller the balance, the quicker you can make it happen.
· Hindsight is 20/20, but if you take advantage of the following tips before you purchase your next home, you will be in a great position to pay that mortgage off early.
5. Don’t Bite Off More Than You Can Chew
· Before you search for homes, it’s important to ensure you’re financially ready and can afford the house you want to buy.
6. Consult a Pro to Find the Right Home
· If you’re looking to buy a home that fits your budget, or if you’re ready to sell your home, give us a call.. as experienced brokers our advice can save you time and money.
· We help you navigate through the home-buying process. In some cases, we may even be able to help you find a house before it hits the market, giving you a competitive edge. And when it comes to making an offer, we will negotiate on your behalf—so that you don’t pay a penny more than you have to.
7. Maximize Your Down Payment
· The best way to buy a home is with 100% down. Paying cash for a home may sound weird, but imagine all the fun you could have without a mortgage payment weighing you down!
· Plan to put at least 10% down at the closing table. Of course, 20% is even better because then you’ll avoid paying private mortgage insurance (PMI). PMI typically costs between 0.5% and 1% of the loan amount annually.
· Keep in mind that the more cash you put down on the front end, the less money you’ll need to finance. That adds up to a lower mortgage payment each month, making it easier to pay off your mortgage early.