Paying off Your Mortgage Early

You've settled into your home and you're getting those monthly mortgage payments out like clockwork. But as you look at the 'amount owed' on your mortgage statement and consider the fact that you have the major part of thirty years ahead of you before your home is truly yours, you may wonder if there's a way to trim down some of that time and far-reaching expense. The answer, of course, is yes.

The obvious, 'normal' way that most people accomplish a faster payoff is to refinance into a shorter-term loan. While this method will certainly do the job, it will also hit you with fees and other finance charges to switch things around. Instead, why not take a more proactive role in the monthly payments you have right now? For instance, if you have an extra $100, $50 or even $20 every month, consider including it as an additional principal payment toward your mortgage balance. While it may not seem like very much at the time, it will add up. Even an extra $20 each month turns into $240 at the end of a year. Not only will you be knocking down the principal that you owe, you'll also be negating a portion of the interest you would have had to pay. The faster the principal is paid down, the less interest it'll accrue over the life of the loan.

You can also send in a larger lump sum. If you have a little extra money saved up, you might consider making an extra payment on your mortgage. A variation on the same theme is this neat little trick: if you can, keep making your subsequent mortgage payments a few days sooner (say, two or three) each month than the previous one, until you end up paying a full extra payment by the end of the year. Again, while it may not seem like much up front, one extra payment a year can actually knock years off the length of your loan.

However, before you undertake any accelerated payoff measures, check your mortgage documents carefully for any prepayment penalties that may be lurking there. If included, you may be assessed this penalty fee if you choose to pay off some or all of the mortgage early. For smaller amounts such as those discussed earlier, there shouldn't be a problem at all. But look over your mortgage anyway, just to be on the safe side. If you haven't signed a loan agreement yet, ask the lender about any prepayment penalties. While it may not matter very much right now, if you decide later that you want to pay down the loan, it can make a very big difference.

If you've already paid one extra payment a year on your home and you still have extra cash that you'd rather not use to pay off the mortgage, consider using those funds to improve the property. The more you do in the area of home and property upgrades, the more valuable your home becomes. Essentially, by putting some extra money (and, if you're handy, a bit of elbow grease) into your home, you're gaining a return on your investment through increased value and a larger equity position. Whether you're planning to stay in your home for the rest of your life or sell it at some point in the future, any effort that boosts your home's worth or allows you to pay less for it is a means of putting more money into your own pocket in the long run.