How would you like to pay off your mortgage early? Does it sound too good to be true? Well, becoming mortgage-free just might be easier than you think. Here are four things that could potentially shave months (or years) off of your home loan and help you pay off a mortgage early.
Pay Extra Each Month
Choosing between that dinner out and putting a little extra toward your mortgage might not be fun. But paying a bit more principal each month rather than just the minimum payment really can make a difference. Let’s say you have a 30-year mortgage for $100,000 at 5 percent interest, and your monthly payment is $536.82. If you increased your payment by just one-twelfth — that’s $44.74 — to $581.56, you’d be making one extra mortgage payment a year.
Over the life of your home loan, this higher payment would save you almost $17,000 in interest charges, resulting in your loan being paid off five years earlier. Use this mortgage payoff calculator from Mr. Cooper to crunch your own numbers (just plug in some specific info about your home loan).
Refinance to a Shorter Term
Thirty years is a long time. If you have a 30-year mortgage, your payoff date might seem far away. But consider this: Would you feel better or more able to achieve other financial goals if your loan payoff date was 10 to 15 years earlier? It might not be unimaginable!
Many people think that a 15-year mortgage means they’d have payments twice as high as a 30-year mortgage, but that’s not always the case. A shorter loan reduces the principal balance faster. So while your monthly payment on a 15-year loan will be higher than on a 30-year loan, it might be more affordable than you think. (One of Mr. Cooper’s mortgage experts can tell you more about how a loan with a shorter term could affect your monthly mortgage payment — just get in touch.)
Refinance to a Lower Interest Rate
While lowering your interest rate may not always shorten your loan term, rates do matter. If you’re currently locked into a higher interest rate on your home loan, it might be a good idea to consider refinancing. If you were to refinance at a lower interest rate while you continued to pay the same amount toward your mortgage that you pay today, you could save thousands of dollars over the life of your loan.
If you have an interest in interest rates (and how they could impact your home loan), check out our Step-By-Step Guide to Refinancing to explore current rates and see how low you can go.
Make an Extra Payment Annually
If you can’t manage a little extra each month, consider making one extra mortgage payment per year — for example, you get a bonus from work, a gift, an inheritance, a tax refund, or other unexpected income. This simple tactic will reduce your principal balance quicker and could potentially save you money in interest while also taking years off of the life of your loan.
In any scenario, your best bet is to talk with a mortgage professional to learn more about your options when it comes to your home loan. The pros at Mr. Cooper are ready to chat when you are!