4 Strategies to Cut Years Off Of Your Mortgage Loan


certificate-of-deposit2If you have ever thought to yourself, “Am I really going to be paying on my mortgage for 30 years?!” you are not alone. Many individuals who obtain a 30-year mortgage loan often think the same exact thing. For some home owners this is something that they want to pay off sooner than later as it often saves them a lot of money in the long run. The obvious way to pay off a mortgage loan faster is to get a shorter-term loan, like a 15-year instead of a 30-year loan. However, on a $300,000 home loan with 10% down, you will likely pay about $620 more a month for a 15-year loan than a 30-year loan and for some, that may be too expensive. If you are in a 30-year loan and looking to pay it off early and save thousands of dollars here are four simple approaches that you can take.

Increase Your Monthly Payments 

This one is one of the most obvious ways to pay off a loan quicker; simply adding more money to your payment each month. If you were able to pay $200 extra per month on your 30-year fixed loan at 3.625 percent on a home purchase of $300,000 with 10 percent down, you’d save $42,969 in interest and pay off your loan six years and eight months years early. If  you could pay an extra $300 per month, you would save $57,122 in interest and pay off your loan eight years and 11 months earlier. If you were to pay $400 extra per month, you’d save $68,426 in interest and pay off your loan 10 years and 10 months early. If you find yourself able to make a higher contribution to your monthly payment amount past the $400, it would be beneficial to go with a shorter term loan at that point due to the cost savings in the interest rate variations between a 15 and 30-year mortgage loan.

Refinance, Then Invest Savings

If you are in a place where you can refinance when the rates drop this is always something worth considering. If you have a 30-year loan and you want to refinance to a 15-year mortgage loan this will shave a significant amount of time and money off of your mortgage. If you bought a home for $300,000 with 10 percent down five years ago, the rate on your 30-year fixed loan of $270,000 was about 4.875 percent, giving you a payment of $1,429 (plus mortgage insurance). With today’s refinance rates of about 3.625 percent on your remaining $247,494 balance, your new payment would be $1,129, saving you $300 per month. This is a huge savings per month and if you take the extra $300 per month in savings you can shave off about over 9 years off or your mortgage.

Make Extra One-Time Payments 

If you know that you can’t commit to paying an extra $200-300 a month towards your mortgage payment then consider the instances where you have an increased cash flow. Maybe you receive bonuses quarterly or even once a year, these are great opportunities to pay off that loan quicker with those funds. Let’s use the $300,000 purchase price again with 10% down. If you got a bonus at work and paid down the loan by $10,000 in year three, you would save $15,747 in interest and pay off the loan one year and eight months earlier. Let’s say you had an inheritance where you received a large chunk of money, say $25,000, and you paid the loan down at, let’s say, year five, you would save $32,556 in interest and pay off the loan in three years and 10 months early.

Make Bi-Monthly Payments 

This is the simplest way to decrease your mortgage loan. By going this route you can reduce your mortgage loan by about four years by paying half of your payment every other week. If you follow this route you are making 26 bi-monthly payments a year which comes out to equal 13 mortgage payments instead of 12 payments in one year. This is great for someone who has a strict budget to adhere to because it chops  your payment up within the month. Using the $300,000 loan with 10% down on a 30-year fixed of 3.625% gives you a payment of $1,231 (plus $88 mortgage insurance). By paying half of this payment every two weeks, the loan will be paid down by an extra $103 a month. This will save you $26,511 in interest and will take about four years off on your loan (Source: Zillow).

If you can manage to pay a little extra towards your mortgage loan in any one of these ways it is always beneficial in terms of money you will save. If you have questions about obtaining a mortgage loan or doing a refinance please don’t hesitate to contact us. We would be happy to help you!





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