Paying off your home loan early can be a smart financial move. It reduces the amount of interest you’d have to pay on the loan, which can be substantial over time. Here are some strategies to consider.
Make Extra Payments
Most lenders in the U.S. will allow you to make one or more extra payments per year, and many allow up to two a year. Making an extra payment can help you pay off your loan in less time than scheduled and save money on interest charges. So, the next time you receive some extra money through a tax refund or a bonus from your employer, put the money toward your home loan.
Look Into Refinancing for Lower Apr
It may be worth considering refinancing your current mortgage if rates fall significantly or if there is another type of financing available at lower rates than your current mortgage rate. When refinancing, make sure to choose a shorter term than what you currently have since the interest savings will you help you pay more per month. If refinancing makes sense for you, talk to a lender about getting preapproved before shopping around.
Pay More than Your Required Monthly Payments
If you have an adjustable-rate mortgage (ARM), consider making additional payments when rates drop below current levels. The extra money that you pay will be applied to the principal and lower your monthly payments until rates rise again, at which point you can go back to your regular payment schedule. You could also pay a couple of hundred dollars extra every month, regardless of whether you have an adjustable or fixed-rate mortgage. Paying $100 or $200 more will not drain your budget, but it will reduce your outstanding balance significantly.
Increase Your Payment Frequency
If you’re used to paying once a month, check with your lender if you can pay every two weeks. Instead of the 12 payments, you would make in a year, you’ll be making the equivalent of 13 monthly payments if you pay on a bi-weekly basis. This tactic is one of the easiest for most homeowners since you barely notice a difference in your budget.
