8 Ways to Pay Off Your Mortgage Faster
The most common type of mortgage loan for a permanent family residence is a 30-year fixed-rate mortgage. Thirty years can feel like you will be paying off your mortgage forever. But did you know there are easy ways to cut your mortgage repayment period short while saving you money on interest and acquiring equity in your home faster?
Benefits of Paying Off Your Mortgage Loan Faster:
- Save on Interest
- Build Equity in Your Home Faster
Here are a few ways you can pay off your mortgage faster and save on interest:
- Make biweekly payments.
- Make one extra payment each year.
- Pay extra money to the principal each month.
- Recast your mortgage.
- Refinance your mortgage.
- Refinance your VA loan into a VA IRRRL
- Choose a flexible-term mortgage
- Choose an adjustable-rate mortgage
Make Biweekly Payments
Instead of paying your mortgage payment all at once every month, split the payment in half and pay your mortgage payment every two weeks. At the end of the year, you will have paid an aggregate 13 months’ worth of mortgage payments instead of just twelve.
It might not seem like a lot at first glance, but using this method of paying off your mortgage can shave 4 to 6 years off of a 30-year mortgage loan, depending on your interest rate.
Not all mortgage lenders will accept biweekly payments, so you will have to check with your lender. If your lender does not offer this benefit, consider choosing a lender who does if you ever refinance in the future.
Make One Extra Mortgage Payment Each Year
If paying your mortgage payment every two weeks is too much of a hassle, then simply make one extra mortgage payment each year. If you receive a tax refund or salary bonus, consider putting them towards an additional mortgage payment at the end of the year.
When you make your extra payment, be sure to make it on the principal of the mortgage, not the interest. Reducing the principal of your mortgage first will ultimately save you big on interest payments. The faster you bring down that principal, the faster you pay off the whole mortgage.
Put Extra Money Toward the Mortgage Principal Each Month
If you can’t afford a whole extra mortgage payment, you can simply put a little extra toward the principal of your mortgage every month. Applying $100 a month to the principal of your mortgage reduces your mortgage term and overall interest. How much you save ultimately depends on the terms of your mortgage loan and how much extra you put toward your principal each month.
Recast Your Mortgage
In the event you come into possession of a large sum of money, you might consider recasting your mortgage. This is when you pay a large lump-sum payment toward the principal of your mortgage and your loan servicer reamortize your loan. The terms of your mortgage will stay the same, but the monthly payment will be lowered based on the remaining principal amount.
It is important to note not all mortgage loans are eligible for recasting. FHA loans and VA loans are not eligible to be recast. Jumbo loans also are typically ineligible. Different lenders may charge a recasting fee and will have varying other guidelines and requirements that determine how often you can recast your loan and how much you can pay down on your mortgage principal.
Refinance Your Mortgage
Another way to pay off your mortgage loan faster is to refinance your mortgage. Refinancing your mortgage can lower your interest rate and shorten your mortgage term. A 30-year fixed-rate mortgage could be refinanced into a 15-year fixed-rate mortgage. While the monthly mortgage payments on a 15-year mortgage are higher than on a 30-year mortgage, the amount saved in interest is worthwhile.
Borrowers often assume a 15-year mortgage payment is significantly higher than a 30-year, but this is not always the case. Let’s compare a 30-year fixed-rate mortgage of $250,000 with an interest rate of 4.75% and a down payment of 20% with a 15-year fixed-rate mortgage of $250,000 with an interest rate of 4.5% (lenders typically offer lower interest rates for shorter-term mortgages).
Your monthly payment with the longer-term loan will be $1,043 and your payment with the shorter-term loan will be $1,530. That’s a $487 increase to your monthly payment BUT the best part is you save $100,188 in interest over the life of your loan with a 15-year fixed-rate mortgage instead of a 30-year fixed-rate mortgage. AND you pay off your mortgage that much faster.
Refinance Your VA Loan Into An IRRRL
If you have a VA mortgage, one of the many underrated benefits of the VA loan benefit is the ability to quickly refinance it into an Interest Rate Reduction Refinance Loan, a VA loan product exclusive to the VA loan benefit. This is a simple way to lower your interest rate and lower your mortgage payments.
You can refinance your VA loan into an IRRRL as soon as 210 days after making your first payment on your VA mortgage loan or after you have made the sixth monthly payment, whichever is longer.
Choose a Flexible-Term Mortgage
The most common mortgage loan terms are 15- and 30-year mortgages, but these are not the only options. You could refinance into an even shorter mortgage term with a lender that offers flexible-term mortgages.
Shorter terms mean less money paid toward interest over the life of the mortgage. If you are not sure which term to choose, find a local independent mortgage broker to help you choose which term you will be comfortable repaying. At this time, VeteransLoans.com does not offer flexible-term mortgages.
Choose an Adjustable-Rate Mortgage
Adjustable-Rate mortgages have earned a poor reputation due to the housing market crash in 2008 when ARMs were responsible for the majority of foreclosures. These types of loans start with extremely low-interest rates that adjust after a specific amount of time. In the recession, homeowners discovered they could not afford their mortgage payments after the interest rates adjusted to higher rates, dramatically increasing their mortgage payments.
Most people still shy away from ARMs, but if you are financially stable and intend to move and sell your home within a few years, an ARM can be the perfect mortgage for you. It is easy to quickly build equity in your home with an ARM and the money you save on interest, you could easily put back into paying extra toward your principal.
Before securing an ARM, it’s essential to look at the details and consider your budget carefully to ensure that you can afford the adjusted payments if you do not sell your home and move when the interest rate adjusts.
Ready to Refinance?
Are you ready to refinance? Or are you just getting started in your journey as a homeowner? VeteransLoans.com is a VA-approved mortgage lender that offers conventional, FHA, and VA loan products. Call 1 (888) 232-1428 to get started today!