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
January 16, 2025Want to buy a home and thinking about getting an FHA loan? FHA loans are a great way to make homeownership happen, especially if you're a first-time buyer or don't have perfect credit. But you might wonder, "Can I get more than one FHA loan?"
The short answer is, it's tricky. The FHA itself doesn't say no automatically to having more than one loan. But there's a caveat. FHA loans are about helping you buy a place to live in – your main home base. Because of this, and a few other things, getting multiple FHA loans isn't easy.
January 15, 2025Buying a condo with an FHA loan is an option some don’t consider initially, but it’s worth adding to your list of potential property types. FHA loans for condo units traditionally require condo projects to be on or added to the FHA-approved list. Still, changes in policy over the years allow borrowers to apply for FHA loans on condo units in projects not on the list on a case-by-case basis.
December 30, 2024When applying for an FHA loan, lenders will consider more than just your credit scores and history. They also look at other factors affecting your risk profile and the interest rate they offer you.
One factor is occupancy type. For FHA loans, this is straightforward because these loans require owner occupancy. Investment properties aren't eligible. While conventional loans may have different rates for primary residences, second homes, and investment properties, this isn't a concern with FHA loans.
December 18, 2024Did holiday spending get the better of you? Are you looking for ways to recover your spending plan as you search for a new home?
The holidays are a whirlwind of festivities, family gatherings, and gift-giving. But amidst the cheer, it's easy to lose track of spending. If you're aiming to buy a home in the near future, those extra expenses can have a bigger impact than you might realize, especially if you're considering an FHA loan.
December 17, 2024The Federal Housing Administration provides mortgage insurance on loans made by FHA-approved lenders, making homeownership more attainable for those who might not qualify for conventional loans.
While financial factors like credit score and debt-to-income ratio are key to loan approval, other non-financial aspects can also cause a denial.
