Buying a home without any debt left to pay is the best way to become a homeowner. Unfortunately, many people don’t have the financial capability to make such purchases. In such cases, people have the option to pay larger mortgage payments over a long period of time. But, no one enjoys the colossal burden these payments become for the budget. It may slow down the general prosperity, prevent you from making other investments, and interfere with your retirement savings. However, there are several ways to pay off a mortgage early and become a debt-free homeowner. Many consider doing so because it gives you significant financial relief and necessary peace of mind.
How to pay off a mortgage early
Home purchasing is one of the most significant lifetime investments and thus requires careful budget planning. This is reason enough to carefully consider every aspect of home buying before you loan money. Even if you already did invest, maybe it’s a good moment to consider other paying methods to reduce your overall debt. Being debt-free will allow you to allocate your money differently and maybe invest it in something else.
If you are like many homeowners who want to get out of debt sooner or reduce the amount you pay for interest, here is how you can pay off a mortgage early:
- Consider downsizing
- Look for professionals to help you buy a new home
- Refinance with short-term loan plans
- Mortgage recasting
- Additional payments to your principal
- Pay off a mortgage early with biweekly payments
1. Consider downsizing
Downsizing may look contradictory, but it’s actually an excellent way to get rid of your mortgage sooner. Maybe even completely. The mortgage for a smaller place will be considerably lower, and you will be able to pay off your debt much faster.
The important thing is to carefully pick your new home and plan your relocation in detail. Find the reliable movers, schedule the moving date, and pick any additional services you need. Once you start cooperating with your movers, pay a little extra attention to documentation, especially to contracts. Don’t forget that understanding the agreement is important because it saves you from unforeseen problems that may cause you additional costs.
When downsizing, you have a chance to save some extra money by selling unnecessary possessions. Add all that additional income to your financial pile and step into a new situation ready. Suppose you are halfway with your payments for a previous home. Once you have sold it, you can use part of the money to cover the entire debt and another part to buy another property.
2. Look for professionals to help you buy a new home
Before making a home purchase and then realizing you have to find a smart way to pay off your mortgage, it’s better to consider everything carefully before investing your money.
For example, when you choose your perfect new Los Angeles home, you should know that all the future payments will be split between interests and principal payments. In most cases, the money you pay first covers the interest costs and only then the principal. Also, many LA buyers often come across extra expenses. There are maintenance costs, insurance payments, and various taxes included. Many have no idea what purchasing a home entails and face numerous surprises once they begin making payments. If you want to get the best out of your plans, it’s necessary to consult proper financial, moving, real estate, and legal advisors. They can navigate you through the entire home-buying process and help you understand the costs better.
3. Refinance with short-term loan plans
Homeowners typically decide to go with long-term mortgage options. In many cases, it’s about 30 years of repayments. Even though this puts less burden on your monthly budget, the interest you pay overall will be considerably larger.
However, if your circumstances allow you, you can refinance your mortgage to short-term loan plans. Your monthly rate will increase, but you won’t pay tens of thousands for colossal interest rates in the end. This can be an excellent way to pay off your mortgage early. The reason for this is because your financial situation probably changes for the better over time. If it is, you will be able to afford to pay larger bills every month. You can refinance your mortgage to a 15-year loan and get out of the debt much sooner.
4. Mortgage recasting
This is not the same as refinancing for several reasons. There are some fees involved in this type of financial plan, but it can be beneficial in certain situations. For example, if you have low-interest rates, recasting will allow you to keep them. In general, you pay a part of your principal debt, and the rest of the loan is adjusted to follow up these changes. As a result, the time range will be shorter, and you will get out of your mortgage debt much sooner. However, if your interest rates are high, this might not be an appropriate financial plan.
5. Additional payments to your principal
Making an extra payment to your principal sum is an excellent option if you have a periodic influx of money. This plan allows you to get out of the debt by paying that extra sum of money only for the principal debt. As we mentioned above, lenders usually first cover interest and then principal debt. With this plan, you will be able to reduce the main debt and, by doing it, you will also reduce the interest rates.
Even with smaller additional payments every couple of months, or when you get bonuses, it will add up over time and get you out of debt much faster. And for those who have FHA and VA loans, this might be the best option because these loans can’t be recast. Just make sure to notice your lenders that these additional payments are principal only.
6. Pay off a mortgage early with biweekly payments
If you want an intelligent option that won’t visibly affect your monthly budget, you can try the biweekly concept. In essence, instead of paying the full monthly mortgage once a month, you pay half the monthly mortgage every two weeks. This will allow you to pay 13 total monthly rates per year instead of the regular 12. However, not every mortgage lender accepts this type of payment. So you should consult professionals in advance, if possible, to guide you through possible options.
In most cases, you should be able to pay off a mortgage early and without penalties. On the other side, some lenders may have prepayment penalties included. That’s why it is crucial to explore all possible options before embarking on paying your mortgage off before schedule. Sometimes, these methods are an excellent way to become a debt-free homeowner. But, there are situations when this might not be the proper course of action.