Only 34% of Americans own their homes free and clear. All other homeowners have a mortgage they’re chipping away at. If you have a mortgage, you may want to consider paying it off early.
Before you begin, you should know…
Some states allow lenders to implement prepayment penalties, which means it could actually cost you more to pay off your mortgage early. Regulations vary per situation, so before you proceed, find out from your lender if you’d face a prepayment penalty on your mortgage.
If there is a penalty:
Decide if it’s worth it to you. Fines are typically a percentage of the mortgage itself. Carefully evaluate the risk versus reward before committing.
If there is no penalty:
Start chipping away at your principal as soon as you can. The first five years is the best time to make additional payments toward your principal.
7 Strategies to Pay Off Your Mortgage Early
Bi-weekly payment plan. Pay half your monthly payment every two weeks. Some months will have an additional payment. This could add up to an extra full payment per year.
Matching principal payment plan. Add your initial principal payment to every monthly payment that follows. This shaves years off your mortgage and saves interest.
Make an extra full payment per quarter. In some cases, this can take up to 11 years off your mortgage.
Cash influx. Put unexpected cash – like an inheritance, birthday gift, tax refund, etc. – toward your principal balance.
Refinance to a 15-year loan. This is helpful if you’re on track to pay it off early, rates are low, and you’re early in the mortgage. Consult your mortgage professional if you’re not sure.
Divide your mortgage payment by 12. Add this amount to your monthly payment and make one extra payment per year.
Do what you can. Make small budget cuts and save money to contribute toward your principal.