4 Ways That You Can Pay Off a Mortgage Early

Paying off a mortgage early can seem daunting, especially when even the regular monthly payments seem high. The trick to paying off a mortgage early is to integrate the prepayments into your regular payment schedule, so that you become used to this routine (and eventually don't even notice it). There are at least 4 ways in which you can shave off a few years from your mortgage:

Monthly principal prepayments. Find a good early mortgage repayment calculator; there are many online banking and credit information sites that offer such calculators. Have your total mortgage loan amount, interest rate, and number of years remaining in hand and input these values into the calculator. Then, input the additional dollar amount that you could see paying each month on your mortgage, whether that amount is $200, $100, or even $50 each month. Recalculate your mortgage and examine the number of months or years you've taken off your mortgage loan by adding just a few additional dollars to your monthly payment.

As an example, consider a mortgage loan of $160,000 that is set at a fixed interest rate of 5.2% over 30 years. If this loan is paid off with monthly scheduled payments of $879 every month, it will actually have cost $316,286 with all additional interest included. However, if an extra $100 are added to every monthly payment, the loan will cost $278,990, which is a savings of $37,297 in interest. The loan itself will be shortened by 6 years and 2 months. If $200 are paid every month, over 10 years will be shaved off the loan term.

Yearly principal prepayments. Set up a mortgage repayment kitty and contribute money into it all year. At the end of the year, cash out the kitty and turn that money into a yearly lump sum payment on your mortgage. Use a lump sum mortgage repayment calculator to determine how much interest and time you have saved by paying this yearly lump sum.

Going back to our mortgage loan example, if just one additional $879 mortgage payment is made once a year on the $160,000 mortgage loan, a total of $29,274 will be saved, and 4 years and 9 months will be reduced, over the life of the loan.

Fortnight payments. Fortnight (which is derived from the Old English term for fourteen nights) mortgage payments are made every two weeks. These payments have the advantage of adding one additional principal payment per year because there are 26 fortnights in a year, which equals 13 equivalent months. You may prefer fortnight payments because they are automatically calculated for and billed to you, keeping you on target. Also, because you are consistently reducing your principal every month (instead of waiting all year before paying it), your interest ends up being even less than what it would be if you made just a yearly principal prepayment.

Sporadic lump sum prepayments. You may simply not have regular extra cash to prepay your mortgage at given intervals of time. However, if on occasion you do have an extra hundred dollars, or more, it doesn't hurt to add this to your mortgage payment. Going back once more to the $160,000 mortgage loan example, even a one-time lump sum payment of $1,000 at the start of the loan reduces its repayment term by 5 months. You can try other lump sum scenarios by going to the following lump sum calculator. Lump sum payments on mortgages are a great thing to keep in mind should you inherit some money or win a cash lottery.