7 Painless Ways to Pay Off Your Mortgage Years Earlier

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How would you like to pay off your home and run the mortgage contract through the shredder a lot sooner than the 30 years many homeowners take?

There are many ways to pay off your home loan faster. You can choose to do it a little faster or a lot. With some tactics — like the following ones — you’ll scarcely notice the increase in your monthly payments.

1. Make biweekly mortgage payments

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Since there are 12 months in a year, homeowners make 12 monthly mortgage payments per year. But if you make half-sized payments every two weeks (biweekly), you’ll make 26 half-payments per year — the equivalent of 13 full payments.

Essentially, it is like making 13 monthly payments every year rather than the usual 12.

To go this route, call your lender and ask the best way to do it. Some lenders will set you up with biweekly payments. Or you might simply prefer to send in the extra payments by mail or electronically.

Whenever you make any extra payment, however, be sure to designate it “apply to principal.” Otherwise, the lender may treat it as a prepayment of your next regular monthly payment.

Use an online biweekly payment calculator like that of KS StateBank to view the savings.

For example, according to that calculator, if you have a $200,000 mortgage with a fixed interest rate of 4.5 percent, making biweekly payments would save $28,037 in interest over the life of the loan and pay off your mortgage in 25.6 years instead of 30. That’s a big bang for not many extra bucks.

Caution: Avoid paying for “mortgage acceleration” programs. Paying down your mortgage faster should not cost extra.

2. Pour every bit of extra cash into your mortgage

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Dedicate every windfall you receive — such as bonuses and gifts — toward your mortgage principal.

It’s possible you’ll find better uses for extra cash than paying down your mortgage, though. For example, if your after-tax mortgage interest rate is 4 percent, but you can earn 5 percent on your money elsewhere, you’re probably better off earning the 5 percent.

3. Round up your payments

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Get in the habit of rounding up your monthly payment. If it’s $1,013, pay $1,020 or even $1,100.

Do this on a regular basis, and you’ll shave years off your mortgage while feeling little pain.

4. Make one extra payment a year

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At the end of the year, give yourself a holiday gift by making an extra payment. Heck, do it at any time.

Or, if you’d rather, just add an amount equal to one-twelfth of your mortgage payment to each month’s payment. For instance, with a $1,013 monthly payment, one-twelfth is about $84. So, you’d pay $1,097 monthly instead.

5. Refinance into a shorter loan

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Interest rates are generally lower, though monthly payments are generally greater, on shorter-term loans than on longer-term loans. So, borrowers choosing shorter terms — such as a 15-year mortgage instead of a 30-year mortgage — can save a great deal of money.

Follow these three steps to find out what you would save:

As of earlier this week, the average interest rate on a 30-year fixed-rate mortgage in the U.S. was 4.4 percent, according to Freddie Mac. The average rate on a 15-year fixed-rate mortgage was 3.85 percent.

Based upon these rates, the KS StateBank comparison calculator shows that for a $200,000 mortgage, choosing a 15-year term would save a whopping $96,959 compared with a 30-year term. That’s nearly $100,000 that stays in your pocket rather than going to a lender.

6. Refinance and pretend it’s a shorter loan

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If locking into a shorter mortgage with higher monthly payments feels scary, you can get much the same effect by refinancing into a cheaper 30-year mortgage but paying it off on a shorter schedule.

You won’t enjoy the lower rates offered for shorter-term loans, but you’ll still save heaps of money on interest.

Sticking with the mortgage rates in the example above, your monthly payment on a 30-year fixed-rate mortgage of $200,000 would be $1,001.52. But if you pretend you’re on a 15-year schedule, for example, your monthly payment would be $1,464.39.

This option requires willpower, because you’re making a larger payment than you are required to each month. But it gives you the option to fall back to your smaller required payment if you need extra cash.

7. Decide if refinancing is cost-effective

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Options 5 and 6 involve refinancing your mortgage. Before considering those options, decide if refinancing is a good move for you.

Whether refinancing is worth it depends on the various associated costs, whether rates are low enough to justify a refinance and how long you’ll stay in the home. To be a good deal, you’ll need to stay long enough to more than recoup those costs.

You can get an idea of your costs using FICO’s mortgage refinance calculator. Also, you can shop around by telling several mortgage lenders how much you want to borrow and asking for their estimates of fees.

Tip: Don’t give lenders consent to pull your credit report until you’re ready to actually apply for a loan, as that can temporarily ding your credit score.