When my husband and I purchased our home, we financed it with a thirty-year mortgage. We assumed that our house would be paid for, free and clear, after thirty years.
So, I would make my payments every month, trying my hardest to never be late, and about the time I was ready to retire, my house would be totally, completely mine.
I thought this was how everyone did it. Little did I know, there are things I can do to either pay off my mortgage sooner, or drag it out and pay it off, well, practically never.If I want to pay off my mortgage in less than thirty years, there are a few simple things I can do.
Add a little extra money to each payment
First, just by adding fifty dollars to my monthly payment, I can cut around three years (and tons of interest) off my mortgage. The trick is to specify that the extra money be applied to principal so the bank puts it towards that purpose and not just towards next month’s payment.
Make one large payment once a year
If I make a large payment once a year, I can shave off even more. For example, last year I used my income tax refund to pay an extra $1,000 towards the principal on my loan. If I do this every year, experts say my loan will be gone almost five years sooner!
Make your payments biweekly instead of once a month
Another method that can trim time from my payoff is to change my payment plan to biweekly. I would make twenty-six payments that would equal a full month of extra principal, spread out over the whole year to be less painful. Any time I can throw extra money at that huge mortgage, I am inching a little closer to being able to be free from it.
On the other hand, I can extend the life of the mortgage monster in a few different ways as well.
There may be good reasons for doing so, however.
Ask the bank for an extension
First, if I were having a problem paying my mortgage, I can ask the bank to extend the term of the loan. They could give a forbearance and maybe let me pay only interest for a few months until my situation improves; I would need to make sure that the new agreement states that the time I have to pay off the loan is longer as well, or else I would have to pay massive amounts to make up the difference.
Get a loan modification
I could also get a loan modification through a government program that essentially does the same thing, with some assistance from the government.
Refinance
The last option is a refinance—I might do this if I want to tap into the equity of my home and use the money, or if I need to get a lower interest rate. I would then have a new loan, for another thirty years, or forty years even.
Just like everyone, I have good reasons to pay off a loan early, or to extend it for years. I will probably plan on paying over thirty years—but if the time comes that I can take advantage of the opportunity to make my life easier by cutting the loan down or extending it out, I’m sure I will take it.
What about you—do you plan to pay your home mortgage for the agreed-upon time, or will you try to pay it off earlier or later? What would convince you to do so?
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