If you’re looking for ways to reduce the term of your mortgage, there are some strategies that are safer and easier than others. Being aware of any caveats of your loan, such as a pre-payment penalty, is imperative before you make a decision. If you’re unsure, read over your mortgage paperwork or speak to your mortgage lender.
The Key to Reducing Your Term is to Simply Pay More Principle
Simply rounding up your mortgage payment to the next whole 10s place (from $872 to $880, for example) and applying the extra cash to the principle can save you multiple payments by the end of your loan. Even better, making one additional mortgage payment a year can cut the life of your loan down to a fraction of its previous length. While it may not be possible every year, doing so when you have the funds available and creating a savings plan can really pay off down the road.
Another method is to make bi-weekly payments, instead of monthly payments. Because there are 52 weeks in a year, you’ll make 26 bi-weekly payments, which is equivalent to 13 monthly payments. You’ll hardly notice the difference once you get yourself on a schedule, and it accomplishes the same goal as above without having to worry about tucking mortgage payments into a savings account.
You can also take the classic approach and refinance for a shorter loan. Of course, refinancing will require you to pay a larger sum each month, but the interest savings alone will more than pay for itself. You can reduce a 30-year term to a 15-year term on a $100,000 and expect to pay about $250 more dollars a month. Get your budget set up correctly, and you’ll be saving thousands of dollars by the end of your 15-year term and own your home free-and-clear.
Not sure which path to take? Contact us, today!