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Owning a home is every American’s dream, but it does come with a very big price. Without the funds to pay for a house, most are forced to go to a bank or credit union to get a mortgage loan, which uses your new house as collateral. Having a mortgage has always been a necessary evil, but with the recent rash of foreclosures it has become even more sinister. With this in mind, more and more people have been trying to figure out how to pay off mortgage early. There are several ways to do this and they all work eventually, but some are safer and quicker than others. The following list shows some of the most popular strategies:
1. Pay more: By far the easiest and simplest way to pay off anything is to simply add more to your monthly payments. To help you figure out an amount that is comfortable for you and how many years it will shave off, try using a payoff mortgage early calculator. You might be surprised how many years will disappear by adding a $100 to your monthly payment.
2. Refinance your mortgage for a shorter term: When you are first buying house with a fixed-rate mortgage, using a 30-year term seems nice because you are paying less. However, when you are trying to figure out how to pay off mortgage early, sometimes it is easier to force yourself to pay more by refinancing to a 15-year term. One nice bonus is that rates are usually lower on shorter term loans. If you are worried about the risk, but still want to pay mortgage off early, you can keep your 30-year term and just pretend that you have a 15-year term.
3. Go with a bi-weekly mortgage payment plan: This tactic of how to pay off mortgage early takes advantage of the fact that while there are 52 weeks in a year, there are only 12 months. 26 half-payments mean that you are paying for a total of 13 months in one year. If you add this into a payoff mortgage early calculator, you can shave more than 5 years off of a 30-year mortgage.
4. Use a money-merge account: This method can be complicated. With this kind of account your mortgage acts the same as a checking account. Your monthly paycheck goes into this account and you take out money as you need it to pay bills. You will technically save on interest with this method since it is calculated on a daily basis rather than monthly. Ideally you will save money by putting more in than you take out. However, when choosing how to pay off mortgage early, this is a more extreme option. It requires a very good understanding of cash management and software that can be very expensive.
5. Put it all in: If these other methods do not work, you can always just start putting any money that you come across toward your mortgage. For example, if you get Christmas card from your parents with a hundred dollars in it just send it straight in. If you come across 20 dollars that you left in a coat from last winter, send that in as well. Anything that can help pay mortgage off early should go. This method isn’t as effective, but it will still shave a few years off.
When deciding how to pay off mortgage early, there are a lot of strategies that you can use. Be sure to understand what kind of budget you have and use a mortgage calculator to see which strategy works best for you.