Most people who buy a home take out a mortgage loan for an average of 25 to 30 years. Longer or shorter terms may be available, depending on the applicant’s financial factors. This average loan period represents approximately one-third of a person’s lifetime, which is a long time to make monthly payments on personal property. However, many loans are available without a prepayment penalty clause, which means that home mortgages can usually be paid off early if the buyer is able to do so. While the typical monthly house payment is often large enough to preclude additional payments for a regular household, there are ways to pay additional amounts on the mortgage to pay off the loan faster, potentially saving thousands of dollars in interest overall and freeing up the monthly budget from a sizable house payment that can then be spent on other things.
Make extra payments.
Paying just one or two extra house payments annually can take years off the total loan period and reduce interest paid by thousands of dollars. Check with the lender to ensure the additional payments are credited to the loan principal as extra payments, not late fees or other loan costs.
Job bonuses, rebates, cash gifts, and tax refunds provide extra income to pay off mortgages sooner. There is no loan commitment to pay extra on a regular basis, so just apply whatever additional income becomes available to the loan’s principal balance to reduce the total remaining amount owed. This in turn will lower the amount of interest paid over the life of the loan.
Add small amounts.
You can make even small payments each month on the principal balance of the mortgage loan. Paying just $10 or $20 can make a dent in the mortgage balance over time. Larger amounts can make an even bigger impact. For example, when you pay off the car loan, apply that monthly amount to the mortgage balance each month for additional long-term savings.
Refinance the mortgage loan.
Mortgage rates are still low enough to make it worthwhile to consider refinancing your home loan. Replacing a 5 percent interest loan with one that is 3.5 percent for 15 years may keep the monthly payment at a similar level, but the interest rate will drop substantially, meaning that the house will be paid off more quickly.
You don’t need huge sums of money to pay down your mortgage ahead of schedule. Making occasional extra payments, adding windfalls, applying small monthly amounts, and refinancing your loan can save considerable interest and pay the home off sooner. Imagine your monthly budget without a house payment and the home’s value for emergency equity as incentives to get started. The Windsor Family Credit Union website is a useful reference for more information.