According to the data released by the Federal Reserve Bank of New York, as at the first quarter of 2022, the total amount of residential mortgage debt in the US is a whopping $11.18 trillion. This debt accounts for 71% of combined home debt in the first four months of 2022.
Most people who have taken a mortgage loan wonder how possible it is to pay off their mortgage so they can become debt free. Many homeowners with 30-year mortgages believe they will never be free of debt.
Fortunately, there are a number of ways to shorten your loan term and save a ton of money in interest on your mortgage. However, you should carefully consider your options. You can hire the services of a financial advisor from Awealth to give you the best advice and guidelines on the best way forward.
5 ways to pay off your mortgage early
The following are ways you can become mortgage-free:
1. Shorten the term of your loan
The 30-year home loan is the most common, but lenders also offer shorter loan terms. A 15-year loan is a popular option, and many lenders also provide 10, 20 and 25-year loans. Shorter repayment periods result in higher monthly payments but less interest paid over the loan’s life. You should speak to a financial advisor on the loan term you should adopt.
2. Make one additional mortgage payment each year.
To pay off their mortgage faster, many homeowners choose to make one extra payment per year. Paying half your mortgage payment every other week instead of the full amount once a month is one of the simplest ways to make an extra payment each year. This is referred to as “bi-weekly payments.” To set up this plan, first speak with your loan servicer. You could also make a 13th payment at the end of the year.
3. Make a Substantial One-Time Payment
A home loan is a significant financial investment. It is not uncommon for people to struggle to make monthly payments due to a lack of income. It may be tempting in such cases to make an extra lump sum payment and close the home loan early. This is a one-time, upfront payment that can be very costly.
4. Recast your mortgage
Mortgage recasting means that you keep your existing loan and pay a lump sum toward the principal, after which your lender adjusts your amortization schedule to reflect the new balance. This results in a lower monthly payment, but your loan term and interest rate remain unchanged. One significant advantage of recasting is that the fees are significantly lower than other refinancing options.
5. Talk to a financial advisor about your decision
A financial advisor will be in the best position to inform you if the option you’ve picked to pay off your mortgage early is the best for you. To avoid making costly mistakes, it is recommended you use the services of Awealth to achieve the best result.