Early Mortgage Payoff Methods
If you are interested in early mortgage payoff, there are several different methods that can work which allow you to pay off your loan in less time. Some of these methods have become so popular that banks and online services even help you to do them. By using one or more early mortgage payoff methods, you can shave years off the life of your loan.
Early Mortgage Payoff Methods
There are several popular methods of early mortgage payoff, each of which involves you making extra payments in a structured form. These methods include:
- Biweekly payments
- Making an extra payment
- Overpaying by the next month’s principle
Biweekly Payments
Making biweekly payments is one of the most popular methods homeowners use to achieve an early mortgage payoff. Under this method, instead of paying your mortgage once a month, you make payments every two weeks. Since most people get paid biweekly, this allows you to align your mortgage payments with your paycheck. Because you are paying biweekly, however, you end up making an extra mortgage payment for a total of 13 payments each year instead of 12. This can reduce your principle faster and cut years off the amount of time it takes to pay off your mortgage.
The downside to this method is that most banks will not accept payments every two weeks, they will only accept a single monthly payment. As a result, many services exist which will automate this process for you. Your bank may offer this service or you can work with an independent company that has an arrangement with your bank. There are usually fees associated with either method but the amount you will save in interest often far exceeds the cost of any fees.
Making an Extra Payment
If you don’t want to pay fees, you can achieve the same thing as biweekly payments by simply making one extra payment each year. This can make budgeting and automating a bit more difficult, but can still help you to pay off your mortgage quickly.
Overpaying by Next Months Principle
When you get your mortgage statement every month, you are given a number that states principle and interest. Much of your payment, at least in the beginning, goes towards the interest, so the amount you are actually paying towards your principle is relatively low. When you make your mortgage payment each month, you can simply add on the amount that you will be paying in principle for the following month, and note that the amount is to go towards principle. This will accelerate your mortgage payoff dramatically.
The downside to this method is that, as you pay down more of your mortgage, the amount of interest you pay gets smaller and the amount of money that goes towards your principle gets larger. It can thus become difficult as time goes on to make the large principle payments a month in advance. However, if your income grows over the years, you may be able to grow into making these extra payments.
Tips for Early Mortgage Payoff
When you make extra payments, either annually or monthly, make sure you note that you want the money to go towards paying down principle and not to be advanced to next months payment. Check your mortgage statement to ensure the bank is applying the payments correctly. Finally, enjoy watching your mortgage balance go down as you take steps towards early mortgage payoff.