If you have a fixed rate mortgage, your lender most likely provides options that will allow you to pay off your mortgage faster without being penalized. By doing so, you will be able to significantly reduce the amount of interest you have to pay, and you will be mortgage free much sooner. What follows is a quick discussion on some of the most common options.
Increase Your Regular Payments
Some lenders allow you to increase your mortgage payment by up to 10% each year. If you are able to do this every year, it will shave several years off your mortgage.
Lump Sum Payment
Every year, you can also make a lump sum payment of up to 10% of the original principal of your mortgage. If you borrowed $500,000, you would be able to make a lump sum of up to $50,000 annually. This amount would apply directly towards your principal, and would reduce your interest and length of your mortgage dramatically.
Choose the Accelerated Payment Option
If your lender offers an accelerated payment option, select it. This results in a reduction in interest and mortgage length and is almost unnoticeable. It basically means you pay a slightly higher payment.
Pay Biweekly Instead of Monthly
If you have the option of paying monthly or biweekly, choose the biweekly payment option. It will reduce your interest because your principal is reduced more quickly.
One-Time Payment Top Ups
Many lenders also offer the option to increase a single payment. That way, if you don’t want to commit to higher payments all the time, you can increase just one payment here and there when you have some extra money.
As you can see, there are a variety of thing you can do to reduce your interest by paying off your mortgage faster. Some people take advantage of all of the above, while others select the one or two that they can afford. If you have higher interest debt, then it’s wiser to pay that off first, but once your expensive debt is paid off, it’s a great idea to tackle paying down your mortgage.
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