Key insights
- Wondering how to pay off your mortgage faster? There are several smart options to consider
- To reduce your interest payments, you may consider refinancing under the same term, or shortening the term of your loan.
- To maintain more financial flexibility, you can auto pay your mortgage and then send in extra cash when you can.
If you have extra cash left over every month, you may wonder if you should use it to pay down your mortgage faster. Here are insights you can use as you determine how to stretch your spare dollars.
Remember, everyone’s personal finances are different. Consult with your accountant or financial advisor before making any decisions regarding your mortgage.
Autopay your loan
Just recently started to earn more money? Congratulations! One smart first step is to set up automated bill pay for your mortgage. If you’ve lived paycheck-to-paycheck in the past, or held your breath as you hoped the check would clear in time, you’ll be amazed at how much your mortgage-related anxiety decreases once you set up automated monthly payments.
Refinance to a lower rate
If you purchased your home at a higher rate than today’s current loan rates, you may want to consider refinancing to get a lower interest rate. The best case scenario after a traditional refinancing is that you continue to pay your same monthly rate, but more of your payment is going towards the loan’s principal.
Refinancing incurs closing costs and additional fees, so speak with a financial expert to determine if the cost of refinancing will pay off in the long run.
And remember, loan rates are expected to rise in 2018 so if you are hoping to refinance, you may want to start sooner than later.
Shorten the term of the loan
If you are confident you can afford a higher monthly payment over the long term, you can consider refinancing your mortgage into a 15-year loan.
This option is appealing for many reasons. First, you can be “free” of your mortgage much sooner. Second, a 15-year mortgage typically has a lower interest rate than a 30-year loan. By taking advantage of a lower rate and paying a higher amount of principal each month, you’ll pay much less interest over time.
The downside to a shorter loan? Like any mortgage, once you sign the paperwork, you’re “locked into” this higher payment. If you aren’t sure you have the long-term, stable finances required to pay off the loan faster, it may be wise to stick with a 30-year mortgage.
Pay more when you can
If refinancing isn’t cost-effective and you don’t trust your finances to remain steady enough for a 15-year loan, you may just want to pay a bit extra each month.
The upside to this option is that it’s flexible. Some people send a full mortgage payment every two or three weeks instead of once a month, while others add a few hundred dollars to their payment on months when they have more cash on hand. Either way, you’re paying down the principal and shortening the length of time you’ll spend paying off your mortgage.
Want personal advice from an expert?
Edina Realty Mortgage’s loan officers work every day with homeowners who are hoping to maximize their finances and pay off their mortgages. Reach out today to be put in touch with someone who can help you to make smart choices regarding your loan payments.
