3 Ways to Pay Off Your Mortgage Quicker
As the end of the year approaches, you may be thinking of resolutions for 2015. If paying off your mortgage quicker is one of them, below are some ideas.
This article looks at ways of reducing a $250,000 mortgage amortized over 25 years with a 5 year fixed rate of 2.94%.
Increase Payment Frequency
One of the easiest ways to reduce your mortgage quicker is to select a bi-weekly accelerated payment frequency instead of a monthly or even a weekly frequency. By choosing to pay bi-weekly accelerated, you are essentially making one extra payment per year (52 weeks / 2 weeks = 26 weeks or 13 months).
|Payment Frequency||Payment||Balance atend of term|
By selecting bi-weekly accelerated, at the end of the 5 year term, the mortgage would be reduced at time of renewal by $6,375. This is probably the least painful way to pay down your mortgage quicker.
Round Up your Payment
Using the bi-weekly payment of $587.72 and rounding it up by $12.28 to $600, at the end of the 5 year term, the remaining balance would be $205,347.
Therefore, by choosing to pay on a bi-weekly accelerated frequency and increasing the payments by a few dollars, the mortgage balance at the end of the 5 year term would be $8,093 less than if payments were maintained on a monthly frequency without any increases.
Lump Sum Payment
Most lenders will allow borrowers to pay a minimum of 10% of the original mortgage amount without any penalty. These additional payments can be made throughout the year and not only on the anniversary date (for the most part) and are applied directly to the principal.
Ten percent of a $250,000 mortgage is $25,000. Most people do not have an additional $25,000 to put towards it, so for the purposes of this article, let’s see what the remaining balance would be at the end of the 5 year term if an additional $5,000 is made every year.
|Mortgage Amount||Balance||Less: $5,000 Prepayment|
So for an additional $5,000 per year or $416.67 per month or $104.17 per week, the mortgage balance at the end of the 5 year term would be $183,822.12.
In comparison: if payments are maintained on a monthly payment frequency and none of the above suggestions are implemented, the mortgage balance at the end of the 5 year term would be $213,439.65, or $29,618 more.
I would be happy to look at your current mortgage and make suggestions which may allow you to pay it down. Please contact me at maria@heritagelending at your convenience.
Wishing you happiness, health and wealth in 2015!