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Tips for a Quicker End to Your Mortgage

 

If you're serious about paying off your mortgage quickly, realize that every dollar you add to your regular payment each month puts a bigger dent in your principal balance — and you don't have to double-down to make a difference. Adding even one extra payment each year knocks years off your mortgage.

Here are some options for paying extra and how those extra payments affect a 30-year mortgage.

Switch to a biweekly payment

  1. Instead of making one monthly payment, you can make half-sized payments every two weeks.
  2. If your usual mortgage payment is $1,000 a month, pay $500 every other week.
  3. This will have nearly the same impact on your budget as one monthly payment, but because there are 52 weeks in a year, a biweekly payment schedule will result in 13 full-sized payments a year instead of the normal 12.
  4. You'll be making an entire extra payment every year without having to scrounge around for the extra money.
  5. If you have a 30-year, $200,000 mortgage at an interest rate of 5%, making biweekly instead of monthly payments will save you $34,328 in interest and allow you to pay off the loan almost five years earlier.

Make extra principal payments

  1. You can send in an extra payment when you make your monthly payment and mark it principal only.
  2. This payment will go to pay down the principal rather than both the principal and interest on the loan.
  3. Paying down even a little bit of extra principal early on in the loan can save you quite a lot in interest charges AND get you out of the loan several years ahead of schedule.
  4. Consider sending just a little extra to the loan holder every month as an extra principal payment, like if you have an odd payment amount like $1,046 per month, round it up to $1,100 and dedicate the extra bit as a payment on principal.
  5. Even though it's just an extra $50 or so a month, the principal payments will add up faster than you'd believe.

Refinance into a shorter-term loan

  1. If you've got a 30-year mortgage, refinance it as a 15-year loan.
  2. You'll probably get a better interest rate as well — shorter loans often mean lower interest rates.
  3. Thanks to the shorter time frame, you'll pay a lot less in interest.

Of course, paying off a mortgage isn't always necessary. If you have a very low rate, you may think that you get a better financial payoff by putting all your extra money into investments instead. That can be a wise move — put extra cash into retirement accounts or other investments and let the mortgage run out on its own.

As you plan, keep in mind that tax rules, the particular terms of your mortgage, and your overall financial situation can change the equation. Be sure to discuss your plans with a financial professional.

 

 
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Our firm provides the information in this e-newsletter for general guidance only, and does not constitute the provision of legal advice, tax advice, accounting services, investment advice, or professional consulting of any kind. The information provided herein should not be used as a substitute for consultation with professional tax, accounting, legal, or other competent advisers. Before making any decision or taking any action, you should consult a professional adviser who has been provided with all pertinent facts relevant to your particular situation. Tax articles in this e-newsletter are not intended to be used, and cannot be used by any taxpayer, for the purpose of avoiding accuracy-related penalties that may be imposed on the taxpayer. The information is provided "as is," with no assurance or guarantee of completeness, accuracy, or timeliness of the information, and without warranty of any kind, express or implied, including but not limited to warranties of performance, merchantability, and fitness for a particular purpose.
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