Low-stress ways to pay off your mortgage early

Does paying off your mortgage and saving tens of thousands of dollars while doing it sound good? Of course it does. And if you’re thinking that you’ll need to rob a bank to pay off your bank, think again. Paying off your mortgage early can likely be done with less stress – and less money – than you think.

“Of course, you will have to come up with more money. There’s no getting around that. After all, the bottom line is the bottom line,” says Bishoi S. Nageh, vice president of New Jersey’s Mortgage Network Solutions. But, he says, people are often surprised at how easy and affordable paying off their mortgage can be through tactics such as extra payments or refinancing to a shorter-term loan.

Of course, it depends on your specific situation, but for some, the cost of paying off their mortgage early could mean little sacrifice – the equivalent of brewing their own coffee and giving up a deli sandwich a few times a week.

But before we get into some areas in which most people can save a buck or two (hundred), let’s check out those two low-stress approaches to paying off your mortgage early to see how it works, and why the savings could motivate you to re-evaluate that morning Starbucks habit.

Make Extra Monthly Payments – Even if it’s a Small Amount

If you thought you had to refinance to pay off your mortgage early, not so says Nageh. Most mortgages, he says, allow you to make extra payments as often as you like and in any amount you can afford. He advises making sure of this, however, since a few loan types have early payoff penalties.

Nageh says one of the advantages of making voluntary extra payments is also a low-stress, flexible way to pay down your mortgage because if something happens down the road that makes paying a little extra impossible, you can always go right back to merely making your normal payment – as opposed to locking yourself into a refinanced higher monthly payment. If you do keep it up, however, you’re in for possibly tens of thousands of dollars saved in interest, he says.

Just make sure you write a separate check each month and write “Principle Reduction” in the memo line, says Jim Duffy, a senior loan officer with Primary Residential Mortgage, Inc. “Otherwise, the bank could put the money in an escrow or other account, instead of allocating it to paying off your mortgage,” says Duffy.

Another thing to check is that refinancing would not lower your monthly payment – and the interest you’ll pay – by a significant amount, he says. “Most people who bought their home in the last four years or so have a fantastic interest rate, so they’re not going to refinance,” he says. He suggests that if you can lower your interest rate by at least 1 percent, you may want to investigate refinancing.

Refinance to a Shorter-Term Mortgage

If you bought your home five or more years ago, says Nageh, there is a good chance you could lower your interest rate by quite a bit through refinancing. And if you chose a shorter-term mortgage, that could get your home paid off sooner than you expected – in addition to saving a ton of money.

“A 15-year mortgage is going to come with an insanely low interest rate, and that saves a ton of interest right there. And the fact that you’re paying off your mortgage in a shorter amount of time saves you even more,” says Nageh.

It isn’t for everyone, however, he says. That’s because the shorter term usually means a higher monthly payment. And unlike making extra payments on your 30-year loan, you are locking yourself into this payment. “So people should make sure they are comfortable with that, and will be in the future,” says Nageh.

He says the reason this might be a good choice for those who bought their home five or more years ago is because they likely have an interest rate of at least 5 percent. So now, with the average 15-year, fixed-rate at 3.15 percent during the last week of 2014, according to Freddie Mac, refinancing could make a lot of sense.

Where Can You Get the Extra Cash to Put Toward Your Mortgage?

As Nageh said, there are not many ways around the fact that to pay off your mortgage early, you’re going to have to come up with more money every month. But guess what. Finding an extra $150, $250, or more a month may be easier than you think.

In fact, it may be as simple as asking yourself a few simple questions about everyday purchases, says Jon Lal, a savings expert and founder and CEO of BeFrugal.com, which offers advice, coupons and promotional offers.

He says the first step is to analyze your current spending. Get your credit card receipts and bank register out and take a close look at exactly where your money is going. Most people are surprised by at how much they spend on at least a few things each month, he says.

“Next, I would advise people to really think about what they need, because that’s where the real frugality comes from,” he says. He says that often, people get in habits that cost them money they likely wouldn’t spend if they just took a step back and asked themselves if they really wanted or needed it. That’s what getting the actual records out does: it forces you to look at your choices in black and white.

Probably the best example of that is the so-called Starbucks habit. For instance, grabbing your coffee on the way to the office may not seem so expensive, but add up that daily $3.50 latte and you’re talking $17.50 a week and $70 a month. On coffee. So ask yourself: Wouldn’t that money be better spent paying off your home?

Here’s another example. According to the U.S. Bureau of Labor statistics, the average consumer unit (anything from a single person to a family of four) spent $2,625 on food “away from home” in 2013. That’s $218 a month. Bring a sack lunch or stay in on Friday night and you’re well on your way to paying off your mortgage early.

 

~ With the rates as low as 3.5% right now if you refinance you could potentially be putting a lot more towards your payment as well as being able to afford refinancing to a 15 year mortgage ~

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