Paying Off Mortgage Early Prior To End Of The Loan Term

Gustan Cho Associates are mortgage brokers licensed in 48 states

In this blog, we will discuss and cover paying mortgage early prior to the end of the home mortgage term. Paying Off Mortgage Early before the end of the term of the home loan is every homeowner’s dream. Most home mortgages are 30-year fixed-rate mortgages. If you pay the minimum amount due every month, it will take you 30 years to pay off the outstanding loan amount.

Homeowners Dream of Owning a Home with no Mortgage Loan Balance

Homeowners who have a goal of paying off mortgage early prior to the end of the loan term can often achieve it by taking our advice. Gustan Cho Associates are experts in advising homeowners in structuring a plan in paying off mortgage early. A home is most people’s biggest investment in their life. Sitting on a home without a mortgage loan balance is something anyone can be very proud of. In order to live in a home without a mortgage requires financial goals and discipline in achieving financial goals. In this article, we will discuss and cover the benefits of paying off mortgage early prior to the end of the loan term.

Advantages And Benefits Of Paying Off Mortgage Early

There is not a homeowner who did not think about Paying Off Mortgage Early whenever they are making their monthly scheduled mortgage payment. Many homeowners fantasize about the day when the balance of their mortgage loan is zero. Once the mortgage loan balance is paid off, the homeowner will have 100% full ownership of their home. The dream of paying off mortgage early ahead of schedule can become a reality. And many homeowners who are financially disciplined often accomplish this goal. There are ways of making extra mortgage payments to achieve your goal of paying off mortgage early ahead of schedule.

Benefits Of Owning A Home Without A Mortgage

Every homeowner’s dream is to own their home without a mortgage loan balance. What this means is the house is 100% yours. There is no lien on the property. You own the house straight out. All the equity in the house belongs to you. There are no monthly payments anymore. This means you have the monthly housing payment available for you to spend for other purposes or just plain save. The best part of it all, you no longer have to pay interest on your mortgage loan. The longer the mortgage term, the more interest you need to pay.

The Sooner You Pay Off Mortgage Balance The Less Interest You Pay

The sooner you pay off your mortgage, the less mortgage interest you will be paying over the term of the loan. After you retire and are on a fixed income, not having a mortgage will go a long way for you. Having a home that is free and clear of any mortgage means you have access to the equity in your home. It is like having huge savings account due to equity.

What If I Need Cash From My Home Equity?

Anytime you need access to money, you can always do a cash-out mortgage refinance or get a HELOC. If you are a senior over the age of 62 years old, you can qualify for a reverse mortgage. You do not need income on reverse mortgages. However, you do need equity in your home. The more equity you have in your home, the more you can borrow against it. The team at Gustan Cho Associates are experts in helping homeowners do a cash-out refinance and reverse mortgage.

The Best Way Of Paying Off Your Mortgage Loan Balance Early

The Best Way Of Paying Off Your Mortgage Loan Balance Early

Paying your mortgage loan balance earlier than the term is due can be done with financial discipline. Instead of paying your mortgage payment once a month, pay it bi-weekly. By paying bi-weekly, you will make an extra mortgage payment a year. That one extra mortgage payment a year can save six years off a 30-year mortgage term. Whenever have extra cash from either a part-time job and/or federal tax income tax refund, pay down your mortgage loan balance. Make sure to tell your mortgage servicer that you are paying down the loan balance. One of the disadvantages of having a home with no mortgage is you are no longer eligible to claim the interest-paid deductions since you no longer are paying mortgage interest.

Experts Advice on the Best Way of Paying Off Your Mortgage Loan Early

Dale Elenteny of Gustan Cho Associates is one of the top loan officers. Dale said the following:

A liquid asset means the asset can be turned into cash without affecting its market value, such as cash and checking or savings accounts. If you’re spending all of your available funds on your home, you no longer have those liquid cash or account assets. Be careful not to invest more than you can afford because you won’t get that money back until you sell. Before allocating extra funds to additional mortgage payments, consider all other avenues in which that extra cash can provide a better return. Options to consider and prioritize include: Pay off high-interest debt – Student loans, car payments, credit cards, etc. Be sure to eliminate all high-interest debt before you consider making additional mortgage payments. Invest 15% of your income into a 401(k) or Roth IRA. If you aren’t contributing 15% of your income to your retirement savings, plan to prioritize your additional funds to support your retirement goals. Determine if you need to prioritize other savings goals (i.e., college savings fund for your family). Consider investing in the stock market to get a better return on investment. The historical average return from the stock market is 10%. The rate of return can vary over time depending on a variety of factors, but a return of 6%-7% would still be more beneficial than a 4% return from paying off a mortgage. It’s important to note that we are not professional investment advisors. Be sure to consult with an expert to determine if a stock market investment is right for you.
We recommend that you do not spend every spare cash you have to pay off your mortgage early. Paying off your mortgage early is a long term goal. It cannot be done overnight. It takes time and financial discipline. Paying down your mortgage by making extra payments is a form of savings. However, make sure to have enough in cash reserves in the event something may go wrong.

3 Ways To Pay Off Your Mortgage Faster For Homeowners 

Once you decided to be a homeowner, you will be excited with the idea of the many benefits of being a homeowner. However, when home buyers realize that most home buyers need a 30 year fixed rate mortgage, they panic and often wonder whether or not they can ever pay off their mortgage in their lifetime. Many of our viewers at Gustan Cho Associates Mortgage & Real Estate Information Resource Center often contact us at Gustan Cho Associates.

How You Can Pay Off Your Mortgage Loan Balance Sooner

They often ask if there are any viable alternative in paying off a home loan sooner without draining their savings account and/or drastically affecting their monthly budget. The most common 3 ways to pay off your mortgage faster is making extra monthly mortgage payments. Make one extra payment every year. Pay your monthly mortgage payments every two weeks instead of once a month. Paying extra every month on your scheduled monthly mortgage payments is often a great idea.

Making One Extra Mortgage Payment Once A Year Will Shave 7 Years Off A 30 Year Fixed Mortgage

By making extra monthly mortgage payments to your lender can often save tens of thousands of mortgage interest charges. It will reduce the number of years of your amortized monthly mortgage payments which means a reduction of your overall interest expense. Every new homeowner should contact their lender to see if they offer an accelerated monthly payment program. The lender servicing agency can sign the homeowner up where they can do the analysis where how much you can save money.

The 1st Of 3 Ways To Pay Off Your Mortgage Faster

The 1st Of 3 Ways To Pay Off Your Mortgage Faster

You do not need to have a large chunk of cash to pay off your mortgage faster and have your home loan paid off sooner than the loan due date. If you can pay a little more every month than the minimum due, the additional money you pay on top of your minimum principle and interest due will go towards your principal mortgage loan balance. The principal mortgage loan balance is the actual amount you owe on your mortgage loan.

Breakdown of Principal and Interest from your Monthly Mortgage Payments

Every month when you pay your mortgage payment, there are two components. Your principal payment plus your interest payment on your home loan. When you first get your mortgage loan and start making your monthly payments, most of the mortgage payments will go towards paying the interest. Only a small fraction of your payment will apply towards the principal of your loan balance.

Applying Principal Buydown With Extra Mortgage Payments

By paying the extra monthly payment every month, the overage payment goes towards paying down your principal loan balance. That extra little principle payment will make a big difference in the upcoming years ahead. If you are consistent with making the extra monthly payment, it could mean many years of reducing the term of your mortgage.

Making One Extra Mortgage Payment Every Year

The 2nd of 3 Ways To Pay Off Your Mortgage Faster is by making one extra mortgage payment every year. By making one extra mortgage payment every year, you can shave off years off to pay off your mortgage loan. Homeowners who get annual bonuses every year or get their tax refunds can use part of those funds to pay one extra mortgage payment every year. They will be eventually rewarded by having their mortgage paid off much earlier than anticipated.

Paying Your Mortgage Payment Every Two Weeks Versus Once A Month

Not all lenders will permit borrowers to change their monthly payment schedule to bi-weekly payments without any costs or fees. Some will not accept a partial mortgage payment and will sweep the partial payment into an escrow account. Once the completed amount is in the escrow account, they will then sweep it towards paying the mortgage payment. If that is the case, you can just make a savings plan yourself. You can transfer half of your mortgage payment into a savings account from your checking account.

Making Bi-Weekly Mortgage Payments

Making Bi-Weekly Mortgage Payments

At the end of the month make your monthly mortgage payment. If you do this every two weeks, you will have a total of 26 mortgage payments which translates into 13 monthly mortgage payments. This translates into making13 monthly payments in one year versus 12 monthly mortgage payments. This system allows you to make one extra mortgage payment every month. If you follow this payment plan religiously, you will be rewarded by paying off your mortgage loan years ahead of schedule.

Savings By Paying Extra Every Month

You can save thousands of dollars in mortgage interest expense by making one additional monthly mortgage payment each year. For example, for a homeowner with a $200,000 loan balance with a 5.0% 30 year fixed rate mortgage loan, the amount of interest expense this borrower will pay over the course of the 30-year term of the home loan is $186,512. However, if this same homeowner were to make one extra mortgage payment every year, the borrower will have paid off the loan in 26 years versus 30 years. The total interest expense this homeowner would have paid over the course of this loan term would have been $153,813 versus $186,512. This translates into a savings of $32,699.

The American Dream of Homeownership

A home is a person’s single largest investment in their life. Paying a mortgage loan early offers a sense of financial security and great accomplishment. That little extra monthly payment may not seem like it will help, but at the end of the day, it makes a huge difference. For more information on this topic or any other mortgage-related topics, please contact us at 262-716-8151 or text us for a faster response. Or email us at [email protected]