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
November 27, 2024If you are new to the home loan process, you may wonder how your loan officer will interpret your application data. How lenient is the lender with issues related to debt, credit utilization, and related factors? We examine some key points, but remember that what follows is not financial advice. Always consult a finance or tax professional for the most current information.
November 26, 2024
Thinking about buying a home? One of the first things you'll want to consider doing is filling out forms to be pre-approved for your FHA mortgage. This means a lender takes a look at your finances to figure out how much they're willing to loan you. It's a smart move, but you might be wondering: "Will applying for pre-approval hurt my credit score?"
November 25, 2024FHA mortgages include a refinance option that allows you to pull equity from your home in cash. The FHA cash-out refinance loan allows the borrower to take the difference between what remains to be paid on the home and the amount of equity built up.
The FHA loan program has some competition in this area, but how do your other government-backed refinance loan options measure up?
November 21, 2024The dream of homeownership is with some from a young age. But in an uncertain housing market, some grapple with the question: Is buying a home the right move for me?
While renting offers relocation flexibility and lower upfront costs, homeownership provides a wealth of financial and personal benefits.
November 20, 2024Refinancing your mortgage offers a way to cash in on your home equity, potentially reduce your interest rate, or modify your loan term. Borrowers ready to consider have options including FHA loans and conventional loans.
While both provide avenues for refinancing, each loan type may be best for specific needs and financial circumstances. What are the differences between FHA and conventional refinance options?
