*Editorial Note: This content is not provided or commissioned by the credit card issuer. Any opinions, analyses, reviews or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by the credit card issuer. This site may be compensated through a credit card issuer partnership.
This article was last updated Oct 09, 2017, but some terms and conditions may have changed or are no longer available. For the most accurate and up to date information please consult the terms and conditions found on the issuer website.
Plenty of financial wizards and real estate gurus offer systems to help homeowners pay off their mortgages early. Read their books and pay for their "assistance", and you could learn how to shave time off your mortgage loan. No matter how enticing these offers may seem, the fact is that many of them are completely pointless. They end up costing you more than you'd save by paying on your mortgage normally. No worries though. We've found a solution that works and we won't charge you a dime to learn about it.
Here is a look at a legitimate method for rapid mortgage repayment so you can get rid of your house loan as quickly as possible.
Pay Off Your Mortgage Fast
The best way to shortcut your interest payments and pay down principal in a quick manner is to just exercise a little discipline. Rely on the calendar and some basic logic, and set up your own twice-a-month payment plan. Instead of paying one time each month, pay once every two weeks. This doesn't mean you have to pay twice as much, however, because the idea is to pay the same amount you normally do. All you're doing at this point is sending in your monthly payment in two equal installments.
Here's how it works:
By paying half of your payment every two weeks, you wind up paying a full extra month's worth of mortgage payments each year. How is that possible? Because there are more than 48 weeks in the year. If you pay once a month, you only make 12 full payments in a year. If you pay 1/2 your mortgage payment every two weeks, you end up making 13 full payments. Need proof? Let's do the math:
Traditional Mortgage Payments: (1 payment per month) x (12 months) = 12 full payments
Rapid Mortgage Payments: (1/2 payment every two weeks) x (52 weeks) = 26 half payments = 13 full payments
And you thought math would never come in handy!
Another way to think about how this system works is to consider that any interest rate payment plan involves charging you interest for each day that you borrow the money. Pay off the debt early and you no longer owe interest. If you pay an extra month's worth per year on a 30-year fixed rate mortgage loan, you'll save a month a year which adds up to about 2.5 years over the life of the loan. Want proof again? Let's check the numbers:
Traditional Mortgage Payments: (12 months per year) x (30 years) = 360 months, 360 payments
Rapid Mortgage Repayments: (360 payments) / (13 payments per year) = 27.69 years to repay your mortgage
To put matters even further into perspective, consider a loan with a monthly payment of $1,200. Over a period of 30 years your savings will add up to approximately $1,200 times 30 – or more than $35,000. Of course it will cost you an extra postage stamp per month, but you can eliminate that expense and hassle by just setting up an online payment account and paying your lender via the internet.
Other Factors to Consider
As with any payment arrangement, check with your lender or study the fine print of your mortgage to make sure that paying this way is permissible. Most lenders are happy to get 50 percent of your monthly payment two weeks ahead of time, but there are some that have fees for early payments.
You also need to make sure that the payments you turn in are being considered as actual mortgage payments, not payments against the principal of the loan. For instance, if you submit a payment on May 1 and May 15, you will have already made the equivalent of a full month's mortgage payment. Thus when you submit a payment on May 29, the lender may assume you're paying against the principal. That means you'll have another payment due June 1, despite paying in late May. As long as you tell your lender that you want something to be used as a payment, you should be fine.
If you want to continue adding money to your loan beyond your mortgage payments, feel free to do so. This method simply plays off the traditional payment structure. You may also consider saving money outside of your mortgage loan and then paying it off in one lump sum. Put that money in a CD or similar interest-bearing account, and you could earn enough in interest to take even more months off your mortgage.
Before you shell out money to setup a special payment arrangement with your bank, consider the solution above. If you stick to the plan from the start, you'll be rid of your mortgage in no time.
Editorial Note: Any opinions, analyses, reviews or recommendations expressed in this article are those of the author’s alone, and have not been reviewed, approved or otherwise endorsed by any card issuer.
*The content in this article is accurate at the publishing date, and may be subject to changes per the card issuer.