Tips for Retiring Your Mortgage Prior to Schedule

A mortgage can feel like a millstone around your neck if you’ve been making payments on it for years. In this article, we’ll go through some of the common strategies people use to pay down their mortgages and analyse whether it makes financial sense for you to do the same.

Should I try to prepay my mortgage, and is it even possible?

The monthly mortgage payment typically represents the single highest expenditure for most households. Eliminating your mortgage payment may be an option, but before you do so, you should research whether or not your lender would penalise you for prepaying the loan.

Some mortgage lenders will assess a “prepayment penalty” on loans that are paid off early. If you pay off your mortgage early, the lender will miss out on years of interest payments that would have brought in a tidy profit for the company. Therefore, a prepayment penalty may be imposed by the lender if the mortgage is paid off early. If you want to know if there is a prepayment penalty if you want to pay off your mortgage early, you may look it up in your mortgage contract or give your lender a call.

In a nutshell, if your lender imposes a prepayment penalty, you can probably find a way around it. Typically, you can prepay up to 20% of your loan’s principal sum each year without incurring any fees from your lender. Let’s say your loan’s principal is $200,000. A $40,000 annual prepayment of the mortgage balance is permitted without being penalised in any way.

If your lender doesn’t impose a fee for prepaying your loan, then you’re in the clear. Even if your mortgage lender assesses a prepayment penalty, you should consider whether or not the savings from paying off the loan early are worth the penalty.

In what ways can I accelerate the repayment of my mortgage?

There is no one best strategy for paying off a mortgage early. Some solutions are more straightforward than others, but they are all viable alternatives.

Mortgage repayments every two weeks

Most homeowners have only one mortgage payment per month. Make your mortgage payment every other week with the biweekly payment option. In this scenario, your mortgage payment is split in half every two weeks. So, if your mortgage is $1,600 per month, you would pay $800.

How a biweekly mortgage payment can help: There are 12 mortgage payments an owner must make every year. By paying your mortgage every two weeks, rather than once a month, you can save money over the course of a year.

The primary perk of making biweekly mortgage payments is the amount of time saved throughout the course of the loan’s repayment.

There will be an annual supplemental payout?:

If you can’t afford to pay biweekly, then making an extra payment once a year is the next best thing. Not only do you reduce your mortgage’s principle more quickly, but you also end up saving a tonne of money. Making an annual additional contribution is possible in a number of ways:

1. Put that refund or bonus check to good use.
2. Start saving a little each month, and then make a big payment in December.
3. Get a second job that you’ll enjoy doing and put the money you make toward your mortgage.

Restructure a Loan:

Consider the following scenarios in which you suddenly find yourself in possession of a substantial sum of cash: an inheritance, the sale of property, a sizable bonus, etc. A mortgage recast, also known as mortgage amortisation, enables you to apply that payment directly to the principle. The interest rate and other terms of a mortgage don’t change when it’s recast. The good news is that your new, lower debt means lower monthly payments for the rest of the loan’s term. The money you’ve been saving each month can then be used toward principal reduction.

Refinance:

Here are two refinancing strategies that can help you pay off your home faster:

Pay off more of your mortgage principal each month and save money by refinancing for 30 years. Reduce the length of your mortgage from 30 to 15 years to save money on interest (shorter mortgages often have cheaper mortgage interest rates) and pay it off even faster with extra principal payments here and there.

When refinancing a loan, it’s important to look around for the best possible rate and terms. The process of refinancing can be made much easier by working with reputable lenders. Be sure to research topics like prepayment fees and closing charges.

Don’t think that your existing mortgage lender is your greatest option either. Before signing any paperwork, it’s a good idea to shop around for a mortgage provider. Use our straightforward mortgage calculator to determine how much you’ll be able to afford each month.

Prepaying your mortgage?:

Most homeowners would welcome the opportunity to finally be free of their mortgage payments. In any case, you should consider the practicality of the move before making it. In the event that your efforts to eliminate your mortgage are preventing you from addressing other pressing financial matters, you may want to slow down. After you’ve taken care of these other concerns, you may go back to focusing on paying down your mortgage. Put some thought into the following questions before making a final choice:

Should I repay credit card debt?

1. Can I get the greatest mortgage rates?
2. Do I have a savings account or other account with enough money for three to six months of bills?
3. Is my retirement savings enough? Can I retire early?
4. Itemize my taxes every year? If I pay off my mortgage early, would the monthly savings offset the loss of the mortgage interest deduction?
5. Do I prioritise my mortgage? Do I have more pressing issues?

Many people view paying off their mortgage early as the most noble of pursuits. The property is now legally yours, however you’ll still be responsible for maintaining it and paying any necessary taxes or insurance. There are many strategies to fulfil the goal of paying off the mortgage early. The key is to settle on a repayment strategy that is practical for your circumstances and affordable on a monthly basis.