There's no place like home when it comes to breaking the
bank. Buying a home is the biggest purchase most of us will make in life. It
starts with signing on the dotted line, which is typically followed by decades
of mortgage payments. Interest expenses alone can result in homeowners paying
hundreds of thousands of dollars over the life of a loan. However, a variety of
strategies are available for those seeking to reduce the shelf life of a
mortgage. Aside from refinancing into a shorter-term loan, let's take a look at four
simple ways from Zillow to pay off your mortgage early.
1. Make biweekly
While you will likely need to talk to your lender about
setting up this method, a biweekly payment plan is the simplest way to shorten
your mortgage without a significant budget increase. This plan can reduce your
mortgage commitment by about four years by paying half of your regular payment
every other week instead of just once a month. Instead of setting up biweekly payments with
your lender or a third party, you could simply add one-twelfth of your regular
mortgage payment to your regular payment. This will also result in 13 payments
2. Refinance and
Low interest rates not only provide an incentive for you to
refinance, but they also make it possible to refinance and pay off your loan
early. If you refinance a 30-year mortgage on a home bought five years ago for
$300,000 and 10% down, you could save roughly $300 per month, according to
Zillow. The refinance will set your payoff clock back from 25 years to 30
years, but if you apply the $300 savings toward your new loan each month,
you'll shave 9.5 years off your new mortgage.
Refinancing can be a headache in today's banking
environment, but the costs may be worth the hassle if you can commit to
reinvesting the savings toward the new loan.
3. Increase monthly
This is perhaps the most appealing method for those with
significant room in the budget — you throw as much extra money at the mortgage
as you feel is reasonable.
4. Consider one-time
If you can't commit to regular extra payments, contributing
large cash infusions along the way can still reduce your mortgage's life span.
For example, using the same $300,000 purchase price with 10% down scenario,
throwing $10,000 toward your loan in year three could save you nearly $16,000
in interest and pay off your mortgage one year and eight months early.
The method you choose depends on your personal preferences. Many
tend to place extra money in a separate account each month and make a one-time
payment toward the principal at the end of the year. This allows for
flexibility in case a financial emergency arises during the year. Personal
finance is personal, so do what works for you.
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