You can repay your mortgage loan early to become the owner of your dream home relatively fast. Besides that, another great advantage is that you can save the money that you need to make on interest payments, if you take more years to repay your home loan. However, before thinking of various options to pay back your mortgage loan early, make sure there is no prepayment penalty to repay your mortgage loan early.
Here are a few options of which you can select as per your suitability if you find that there is no penalty to repay your mortgage early.
- Plan an annual lump sum payment - You can speed up the mortgage repayment process by scheduling a lump sum payment every year. If you are in a job, then you can use your yearly bonus towards reducing the principal of your mortgage debt.
- Make extra payments towards reducing the principal - Using a separate checking account or payment is a good option to reduce the principal amount. Do not forget to mention to the lender or to the servicing company that these payments are exclusively for reducing the principal amount of your home loan.
- Opt for bi-weekly payments - This is one of the best ways to repay mortgage quickly. Instead of making a monthly home loan payment, opt for bi-weekly payments, wherein you need to make half monthly payment after every 2 weeks. By opting so, you will end up contributing an amount towards paying off your mortgage loan which is equivalent to thirteen monthly payments in a year.
- Make extra payments at the early phase - It is better to make extra payments during the initial phase of your mortgage loan. The reason behind is that amortized payments are usually interest up front; so, the initial payments go towards paying off the interest. Therefore, the early you make these payments, the sooner you will start making payments towards the principal amount. You should make as much payments as you can make during the initial years of the loan especially, if you make a relatively low down payment on the home.
- Refinance for a relatively shorter loan - You can also refinance your current mortgage loan with a relatively short term loan. For example, you can refinance your 30-year mortgage with a 15-year mortgage if you're financially capable of making the required monthly payments on time. So, before opting for this option, assess your financial condition to make sure that you'd be able to make the higher payments every month within the due date.
Whatever option(s) you choose, you need to plan a suitable budget and save money so that you can make extra payments towards your mortgage loan and not default on the loan. So, act responsibly when you make such a big financial investment by taking out a mortgage loan to buy a house and build a financial asset with time.