Paying additional principal on your mortgage can save you thousands of dollars in interest and help you build equity faster. There are several ways to prepay a mortgage :. There are two primary strategies for making extra payments on your mortgage:. With biweekly mortgage payments, you make a payment toward your mortgage every two weeks.
However, there are 52 weeks in a year and just 12 months. In effect, you make an extra monthly payment each year.
The extra money goes toward reducing principal, helping you pay the loan off more quickly. You can also choose to make pay more toward your loan balance each month. One tactic is to make one extra mortgage principal and interest payment per year. A year later, you will have made 13 payments. Make sure you earmark any additional principal payments to go specifically toward your mortgage principal. Lenders typically have this option online or have a process for earmarking checks for principal payments only.
Ask your lender for instructions. Once you have built sufficient equity in your home at least 20 percent , ask your lender to remove private mortgage insurance, or PMI. Paying down your mortgage principal at a faster rate helps eliminate PMI payments more quickly, which also saves you money in the long run.
You can also refinance your mortgage to eliminate PMI altogether. Once those bases are covered, prepaying a mortgage comes down to discipline and comfort level. Do you want to be completely debt-free, or would you prefer your money working harder for you in other ways?
Prepaying your mortgage can be a good idea in many situations. It can be a big step toward becoming debt-free and greatly reduce your monthly expenses. For starters, tying up your cash in your home means you have less liquidity and wiggle room in your budget.
These financial goals could offer a higher return on your investment. Another consideration is the opportunity cost of not having that extra money invested elsewhere. Over the past four decades, the stock market has returned an average of 13 percent a year. When deciding whether to pay off your mortgage, look at your entire financial picture. Here are some important questions to consider:. What about their education? And daycare is already obscenely expensive. How will you pay off other debt?
Before deciding to increase your monthly mortgage bill, focus on paying off other obligations and try not to take on new debt. As of January , the average credit card interest rate was What about taxes?
Ask your tax advisor about tax implications that might kick in after paying off your mortgage. Will the terms of your mortgage allow for pre-payment?
Before you attempt to pay off your mortgage early, be sure to review your original loan documentation. Some lenders accept extra payments only at specific intervals, while others may charge prepayment penalties. This could stop you from moving forward before you even get started.
If, after answering the questions above, you decide that paying off your mortgage early is the right move for you, there are several ways to go about it. Here are some examples of how you could move towards an early mortgage payoff. You must check the box to agree to the terms and conditions. Thanks for signing up! Sign up. Trending 1. Follow Us Facebook externa link icon. Twitter externa link icon. Instagram externa link icon. LinkedIn externa link icon. YouTube externa link icon.
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