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The main advantage in paying off your mortgage earlier is to save a lot of money in interest payments. On a 30-year term, one extra mortgage payment per year may save you over $50,000 in interest payment and cut down the mortgage terms by up to 5 years. This article shows you 3 ways on how to pay off your mortgage earlier.
As we all know that when we take out a home mortgage to finance the purchase of our dream home, we have to pay the bank back in monthly payment plus interest. On a fixed interest mortgage, the monthly payment will be the same throughout the loan term. If your mortgage term is 15 years, your monthly payment will be the same for each of the monthly payments. The same goes for a 30-year term mortgage. However, many people don't understand how the underlying monthly payments work. At the beginning of a mortgage term, most money is paid towards the interest with little money to pay down principal. The money that goes into paying down principal gradually increases as time passes. On a 30-year term, it could take a decade or more before principal payments exceed interest payments each month. By looking at an amortization schedule, you will learn exactly how much your money is paying towards interest and principal for each payment.
There are many ways that you can pay off your mortgage early. You can use biweekly payments instead of monthly payments. By using biweekly payments, you are essentially making one extra payment each year. You can also make one-time payments at the end of the year if you get a bonus from your company or receive money from your tax returns. You can also set up extra payments to pay extra for each payment, such as $200 more on top of your monthly payments. No matter which forms of payments that you choose to pay down your mortgage, there are two things that you need to do first.
There are three ways that you can pay off your mortgage earlier, you can either make more money, cut down your spending to save more money, or refinance your house if the rates are lower.
Here are 10 tips on how to cut spending and save more money to pay off your mortgage early.
Spending more money doesn't necessarily make you happy. Sometimes it is just a routine. By building a good habit of spending, you can stop wasting money on unnecessary stuff, and use that extra money you save to pay off your mortgage, use it for retirement, or investment.
Another way to get more money is to of course make more money. With the Covid-19, more people are working from home than ever. There are part-time jobs that you can find online to increase your earnings. You can even offer services on sites like Fiverr in exchange for money. You can also try to find work on freelance sites that allows you to work on your own time. These jobs are highly flexible since you will be working from home, and you can use the extra income to make payments toward your mortgage. Content writing is a high-demand field in the online space. If you can write well, you can become a high-paying content writer or charge a high fee on Fiverr to sell your writing work. You can also use your writing skills to start a blog and make money from blogging. However, blogging takes time and effort and it will likely take at least a year of writing before you can see any meaningful income flowing in. If you hate writing, that's fine. You can browse around Fiverr or any other freelance website to see what kind of services other people are offering. There should be something that you can offer to the world with your skills and charge a fee for it.
You can consider refinancing your mortgage if the mortgage rates are lower now than the time that you bought your house. With the Covid-19 going on throughout 2020 and continuing in 2021, the mortgage rate is lower than ever. You can check with your bank to see what the costs are and how much you can save in refinancing. You can use the refinancing calculator to get a rough estimation of how much you can save.
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