The typical home value in California is $774,899, according to Zillow. That is higher than the conforming loan limit of $647,200 for a single-family home in most counties in the state. So, whether you have a conventional or jumbo mortgage, there are various reasons why you might want to pay off your mortgage faster. In this article, we’ll offer tips for paying off your mortgage early, as well as what you need to know about the benefits and considerations of paying off your mortgage before the loan term is up.
Benefits of Paying Off Your Mortgage Faster
Not sure if paying off your home mortgage loan early is right for you? Here are some potential benefits:
- Save money on overall interest paid
- Eliminate your monthly mortgage payment
- Enjoy the feeling of owning your home outright.
- Reallocate your mortgage payment to other financial goals
- Tap into your home’s equity for affordable financing when you need it
Have you decided that you want to pay off your mortgage early? Already thinking about what you could do with that money instead, such as paying off credit card debt? Next, we’ll look at the best tips and techniques for how to pay off your mortgage faster.
Tips and Techniques to Pay Off Your Mortgage Faster
Before you start incorporating these strategies into your routine, check the terms of your mortgage loan to see if it has a prepayment penalty. If so, you may still save money in the long run, but it’s good to know the whole picture to weigh the pros and cons before deciding.
Make extra payments on the principal.
Pay more in each monthly payment against the principal or make an extra payment towards only the principal each month. The extra amount doesn’t have to be huge. For example, paying an extra $100 toward the principal balance of the mortgage loan every month can shave off years and thousands in extra interest payments.
Make bi-weekly payments instead of one monthly payment.
Another option is to make bi-weekly payments by splitting your monthly mortgage payment in half and paying every two weeks instead. Bi-weekly payments are beneficial because your payments will be applied more often, so you will accrue less interest over a month. If you stick to a bi-weekly payment schedule, then you will end up making a full extra “monthly” payment by the end of the year, 13 payments vs. just 12, which helps shorten the life of the loan and reduce the overall cumulative interest accrued.
Round up each payment.
Your monthly mortgage payment is usually an uneven dollar amount and some change, so rounding up your monthly payment, even $5 or $10 each month, can help cut down on cumulative interest over the life of the loan and get the loan paid off faster.
Make a large lump-sum payment when possible.
If for some reason you have more money available than usual, such as an inheritance, bonus check, cash from property or asset sold, etc.–you can use it to make a larger lump-sum payment toward the balance of your mortgage. If you do this, specify where you want the money to be allocated. Putting the extra money towards the outstanding principal of your loan will help you pay it off sooner.
Review your homeowner’s insurance policy.
Many homeowners roll their home insurance premiums into their monthly mortgage payment, so if you can revisit your homeowner’s insurance policy and find a lower rate, you can spend less on that portion of the monthly payment and put the money you save on the lower insurance rate towards the principal balance of your mortgage each month.
Get a free quote on homeowners insurance to see if you can save money on your policy.
Rent out an extra room for cash.
If you have an extra room or rooms available in your home, consider looking for a roommate to make extra money to put toward paying off your mortgage early. If you don’t have extra bedrooms available, you could consider renting out other spaces of your home such as your backyard for parties or events, or your garage for storage space.
“Recast” your mortgage.
Mortgage recasting is when you keep your existing loan and pay a lump sum toward the principal, and then your lender adjusts your amortization schedule to reflect the new balance after that lump sum payment has been made. Recasting your mortgage helps because it will lower your monthly payment, while your loan term and interest rate stay the same. A significant benefit to recasting vs. refinancing is recasting fees are significantly lower than seeking out a full refinance, usually between $200-$400.
While recasting in and of itself won’t pay your mortgage off sooner, lowering the base monthly payment can make it easier for you to pay extra each month and chip away at the principal balance.
Refinance your mortgage to a better rate.
Another way to save money on interest is to refinance your mortgage loan. Refinancing allows you to shorten your loan term to pay off your home faster. Whether you reduce your monthly payment amount through a lower interest rate and pay extra, or you shorten the loan term to help you pay it off early, mortgage refinancing may be a good option for you.
Consider a 5/5 Adjustable Rate Mortgage (ARM).
A 5/5 ARM is an adjustable-rate mortgage that offers a lower initial rate for the first five years. After the initial five years, the rate will adjust and lock in for another five years. This loan is an excellent choice for borrowers who want the security of a fixed rate but don’t want the higher rate of a standard 30-year fixed mortgage. Getting a lower rate means applying more money to your balance to pay it off early.
Apply for a mortgage loan from SkyOne!
Whether you have a California mortgage loan you’re looking to pay off early, or you live in another state, our credit union mortgage lenders can help you review your options for paying off your mortgage faster or refinancing into a new mortgage loan. Contact us today!
If you’ve purchased a home two years ago or longer, you almost definitely have a lot of equity in your home. Consider tapping into your home’s value with a HELOC or Home Equity Loan to help pay for that new kitchen or college tuition for your kids. Apply online today!