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Tips for Paying Off Your Mortgage Ahead of Schedule

Posted by  on May 04, 2010
 

A mortgage can be a real burden on your monthly budget. If you can pay it off a bit early, you can save a ton of money in interest, and you can release yourself of that stress ahead of schedule. Paying off your mortgage early isn’t as hard as you might think. Here are the best tips for getting the job done before it’s officially due:

Tip #1: Add a few dollars to every payment.
Don’t break your budget, but even if you can only put $5 extra with every payment, do so! $5 may not seem like much, but remember, mortgages are long-term. Over time, those dollars will add up. For example, if your mortgage payment is $1000 a month and you put $10 extra onto every payment, you’ll have paid off a month early in about 8 years. Since mortgages are 15 to 25 years, you can pay off your mortgage two months early over its life! That may not seem like a big difference but as you’re reaching the end, finishing a few months early feels great.

Tip #2: Refinance if the market swings in your favor.
Refinancing isn’t just about pulling money out of your mortgage by cashing in on equity. You can also refinance to lower your interest rate. With a lower interest rate, you can shorten the term, since your monthly payments will also lower. Watch the market. You should refinance when the interest rate is as low as you think it will go. Avoid refinancing more than once or twice because remember, there will be closing costs associated with every refinance. Make sure your calculate these costs into your refinance to make sure that you really will save money.

Tip #3: Don’t miss any payments.
Everyone falls upon hard times financially, but if you’re prepared for it, you shouldn’t have to worry. Save up enough money that you can cover your expenses for about a month. In the case of an emergency, you can turn to this reserved money instead of missing a payment on your mortgage or any other bills. When you miss a payment, not only does it hurt your credit, but it can also be hard to get back on track again, since the following month you’ll owe twice as much. It is a slippery slope, and in addition, you’ll owe more money in fees and interest. Always plan for the unexpected.

Tip #4: Work with a financial professional.
Talking to a professional can really help you save money. Accountants, certified mortgage professionals, and financial advisors often know of tax breaks, mortgage tips, tricks when refinancing, and other ways to help you save money with your mortgage. Every dollar your save can go towards your mortgage, helping your pay off your mortgage more quickly.

Tip #5: Resist the urge to cash in on your equity.
Every time you watch television, you likely see advertisements offering to help you refinance, take out a home equity loan, or apply for a home equity line of credit. These financial tools really make a lot of sense if you need to do home repairs or pay off very high-interest loans. However, doing so will definitely not help you pay off your mortgage any sooner. If it makes sense, then go with this option, but it is very important that you actually need the money. Many people take out loans against their mortgages when they don’t actually need the money. Using this type of loan to purchase designer clothing, a more expensive car, and so forth is just not a good idea.

Tip #6: Make sure that paying off your mortgage ahead of schedule makes sense.
Lastly, before you start throwing extra money at your mortgage lender, make sure that it is a smart financial move. In some cases, it doesn’t make sense. First, you may owe fees if you pay off the mortgage too early. So, if you have a mortgage for 20 years and win the lottery after 2 years, you may want to crunch some numbers to decide when you want to actually pay it off. In addition, check out your interest rate versus the interest rate you’d get if you put the money into a CD, bond, or high-interest savings account. How much would you save in interest every month you pay off the mortgage early? If you put that money into the bank instead, how much money would you make in interest every month? If you’ll make more that you’ll save, it doesn’t make sense to pay off the mortgage ahead of schedule. Do your research to make sure that your mortgage choices make sense!

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