Paying Off Your Mortgage Early
May 21, 2025
Others want to pay more and pay off their mortgage as early as possible. Several strategies can speed up the process for those who find the benefits of early payoff more attractive.
Making Extra Payments: This is the most direct method.
Bi-weekly Payments: Instead of one monthly payment, make half a payment every two weeks. This equals 26 half-payments, or 13 full monthly payments, per year. The extra payment is applied to the principal balance. This can shorten the loan term but doubl check with your lender that extra payments are correctly applied to the principal.
Adding a Set Amount Monthly: Adding even a modest sum to each monthly payment, clearly designated for "principal reduction," can make a difference over time. For example, rounding up your payment or adding an extra $100 or $200 can be effective.
One Extra Payment Annually: Making one additional mortgage payment each year, perhaps from a tax refund or bonus, has a similar effect to bi-weekly payments.
Lump-Sum Payments: Applying larger, occasional amounts, such as an inheritance or a significant bonus, directly to the principal can greatly reduce the loan balance and speed up the payoff.
Refinancing to a Shorter-Term Loan: If your finances allow for higher monthly payments, refinancing from a 30-year mortgage to a 15-year or 10-year loan is an effective strategy.
Shorter-term loans typically have lower interest rates than 30-year loans, meaning more of each payment reduces principal from the start.
Monthly payments will be higher than those on a 30-year note, but the total interest paid will be much lower, and you will own the home free and clear much sooner.
Mortgage Recasting (or Re-amortization): This is a less common option for those who can make a large lump-sum payment. After the payment reduces the principal, the lender adjusts the monthly payments based on the new balance and the original remaining loan term.
This leads to lower monthly payments, improving cash flow, while keeping the original payoff date (though you can continue to pay the previous, higher amount to pay it off sooner). Some lenders offer to keep the payment the same and shorten the term. Not all lenders offer
recasting, and there might be a small fee.
The Prepayment Penalty: A Critical Consideration: Does your loan include a prepayment penalty? FHA mortgages do NOT feature these costs. The penalty is a fee some conventional lenders charge if you pay off all or a significant portion of your mortgage ahead of schedule.
It is worth noting that FHA mortgages do not permit the lender to add a prepayment penalty, so if you have an FHA loan or refinance into one, you won’t be charged extra for the privilege of paying off the loan ahead of schedule.
FHA Loan Articles
February 13, 2025For many college graduates, student loan debt is a concern. A common question is how this debt impacts the ability to buy a home. This Q&A explores the relationship between student loans and FHA loan approvals. How much do you know about how your student loan debt affects your ability to be approved for a mortgage?
February 12, 2025Choosing between FHA and conventional home loans can be daunting for some first-time home buyers. What are the concerns between these two programs, and what does each one offer the borrower? We examine some of the key issues in our question-and-answer session about FHA mortgages versus conventional loans.
February 11, 2025Established in 1934 as part of the National Housing Act, the FHA's primary mission is to stimulate the housing market by providing mortgage insurance to lenders. This insurance reduces the risk associated with lending to borrowers who may otherwise be considered higher risk, encouraging lenders to offer more favorable terms, such as lower down payments and more flexible credit requirements. A key element of the FHA program is its commitment to fair housing, which is deeply rooted in the Fair Housing Act.
February 10, 2025How much do you really know about the home buying process? One major factor in protecting your new investment is knowing how the title search process works and why you need to have one done. This quiz will assess your comprehension of what a title search entails, why it's so important when using an FHA loan, and how it protects you as a buyer. From identifying potential liens to guaranteeing clear ownership, a title search plays a critical role.
January 30, 2025FHA residential refinance loans, insured by the Federal Housing Administration, allow homeowners to refinance their existing mortgages. They potentially have more flexible qualification requirements than conventional loans. FHA refi loans can lower monthly payments, shorten the loan term, consolidate debt, or even access cash for home improvements or other needs. Understanding the eligibility criteria and different refinance options is crucial for homeowners considering this option.
