If you're in the market for a new home, you might not be thinking about the payoff right now. However, now's the perfect time to start planning for the day when you can pay your loan off. In fact, if you start planning early, you might actually be able to pay your loan off early, which would put more money into your pocket. Here are three simple steps that will help you pay your mortgage off ahead of time.
Make Bonus Payments
If your monthly budget is going to be stretched to the limit, you might not be able to make additional payments towards the principal on your mortgage. However, that extra money that you get throughout the year could go towards chipping away at the principal. If you're expecting a sizable tax return, or you get a bonus at work, put that money towards the principal. As you chip away at the principal during the year, you'll find yourself paying the mortgage down quicker.
Change to Bi-Weekly Payments
When you make monthly mortgage payments, you may twelve payments per year. However, if you switch to bi-weekly payments, you'll actually be making thirteen payments each year. That extra payment will go directly towards the principal, which means you'll pay your house off sooner than you anticipated. When you start making those bi-weekly payments, be sure to let your mortgage company know that you want the extra money to go towards the principal, and not the interest.
Refinance the Loan
If you weren't in the best place financially when you bought your home, you might not have gotten the best interest rate. That doesn't mean you can't change that later. After you've had your loan for a few years, take advantage of a refinance to help you pay your home off quicker.
Switch to a 15-Year Mortgage
The first way to take advantage of refinancing is to switch from a 30-year mortgage to a 15-year mortgage. The shortened mortgage duration will allow you to pay your home off in half the time.
Switch to a Lower Interest Rate
Another way to use refinancing to your advantage is to refinance down to a lower interest rate. Once you have the lower interest rate, continue making the original monthly payments. By making the same payments, with a lower interest rate, more of your monthly payment will go towards the principal, which will pay your mortgage off quicker.
If you're getting ready to buy a new home, take advantage of the early payoff tips provided here. Talk to your realtor about other ways to pay off your mortgage ahead of time.