If you own real estate then you know all too well how the interest charges pile up over the course of 30 years. You would love to pay it off but it seems like a lifetime away before your mortgage statement shows a zero balance. There are some things you can do to pay down your mortgage debt earlier and save money that would have gone to interest.
1. Ask your lender if you can make biweekly payments. Every two weeks, pay half of your mortgage payment. At the end of the year you will have made one full extra payment. To make sure this works to your benefit, make sure your lender understands that you want each payment applied as it comes in and not wait for the second half before applying it to your balance.
2. Make extra payments to the principle. Make your normal payment as usual, but make additional payments on the principle. It is very important that you note on the check that it is for principle only. Otherwise, it will likely be applied as a normal payment with the majority going to principle or it will be held as a credit for the next month's check.
3. Refinance if the real estate rates are low enough. In order for it to make sense, interest rates should be about two points lower for you to reap the benefits. When doing this, you have to weigh the great rate, lower payment and more closing costs to see if it works for you. When you lower your payment, continue to pay what you were with the higher rate, indicating that the extra is for principle.
4. Refinance to a shorter term. A 30 year mortgage has a lower payment, but you are paying for longer which means more interest. A shorter term will have a higher compensation, but you will get out of it sooner with less interest charges.
Talk to a mortgage professional before making a move. Check your math and make sure you can afford to pay off the real estate loan early. If it prevents you from saving for your child's education or drains your savings, you want to really think about it before acting.
Also, check with your lender about early pay-off penalties and other fees that may affect you if you do this. Another issue to consider is how long you plan to be in the home. If you are likely to move in the next five years, it doesn't make much sense to invest in an early pay-off.
If you've done your homework and are ready to leap, then go for it. Reap the benefits of paying off your real estate early and start planning what you will do with all that extra money in your pocket!
