Four Smart Tips for Paying Off Your Mortgage Early

There are many reasons why a homeowner would want to pay off their mortgage early. One of the most common reasons is the emotional benefit that you would feel when you own your home. There are also financial benefits for paying off your mortgage early because you can save thousands of dollars in interest. But how do you save the most money on paying off your mortgage? Here are a few tips you can use.

Start Early
If you are going to pay off your mortgage early, start as early as possible. The sooner you start sending in extra payments, the faster you can whittle down the interest that you are going to pay over the term of the mortgage loan. Most mortgage loans are designed so the first few years are “interest heavy,” meaning that most of the money from your payments is put towards the interest on the loan, and very little towards amortization. By making payments early on in your loan, you also build up equity faster which is ideal if you didn’t put down a sizable down payment.

Know the Prepayment Penalties
Many mortgage analysts boast about the benefits of making bi-weekly payments on your mortgage. This means making a half payment on your mortgage twice a month instead of making one monthly payment. The idea behind this concept is that you would be making what equals 13 monthly payments instead of the normal 12 payments. But before you start making your payments this way, check with your mortgage lender. Some lenders will charge you a fee for making bi-weekly payments. Some lenders only apply the payments once a month when you make bi-weekly payments so it would make no difference anyways.

Mark Your Extra Payments
If you do decide to make extra payments each month or some one-time payments throughout the year, make sure you mark your payments. Mortgage payments are set up on a monthly cycle so when a lender receives unexpected payments, they may not get applied to your account appropriately. When making extra payments, be sure to use a separate check for the payment and write in the memo line that the extra payment is for principal reduction.

Be Informed
Keep up to date on the latest news in the mortgage industry. If you have been paying on your mortgage for a few years, you may qualify for a lower rate if you have improved your credit score. Or mortgage rates may be lower today than they were when you first bought your home in which case it may make financial sense to refinance (click here to check rates where you live). Check with a qualified financial advisor for more specific information about your individual situation.

By keeping these things in mind, you can start paying down your mortgage and save thousands of dollars over the term of your home loan.