Sunday, February 25, 2024

How To Pay Off My Mortgage In 15 Years

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What The Early Mortgage Payoff Calculator Does

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Do you want to pay off your mortgage early? Maybe you have 27 years remaining on your home loan but you would rather pay it off in 18 years instead. The early payoff calculator demonstrates how to reach your goal.

The mortgage payoff calculator shows you:

  • How much more principal you would have to pay every month so you can pay off the loan in a certain number of years.

  • How much interest you would save by paying off the loan early.

There are many reasons you might want to accelerate the mortgage’s payoff, but the motivation usually boils down to either or both of these:

  • You want to own your home free and clear by a milestone in life, such as your retirement or the beginning or end of your kids’ college years.

  • You want to reduce the total interest you pay over the life of the loan.

To steadily pay off the mortgage early, you need to know how much more to pay toward the principal balance every month to accomplish that goal. This calculator lets you do that.

When paying down the principal on a mortgage faster, keep in mind that each servicer has its own procedures for assuring that your extra payments go toward the principal balance instead of toward future payments. Contact your servicer for instructions.

Find Savings Elsewhere In Your Home

You can lower your homeowner’s insurance by increasing the deductible, and take that savings and apply it to your mortgage principal. Increasing a $500 homeowner’s insurance deductible to $3,000 decreases the national average premium by almost 20 percent, for example.

Getting rid of private mortgage insurance, or PMI, is another way to pay off a mortgage quicker with savings found elsewhere. PMI is a monthly premium homeowners pay if they can’t afford at least 20 percent down on a home.

Once they have at least 20 percent equity, they can get rid of PMI. Under the Homeowners Protection Act, HPA, homeowners have the right to request cancellation of PMI when the mortgage is paid down to 80 percent of the original purchase price or appraised value of the home when the loan was obtained, whichever is less, says Tangela Walker-Craft, a writer for Examiner.com in Tampa, Fla.

Good payment history is also required, meaning not being more than 30 days late with a mortgage payment within a year of the request, or 60 days late within two years.

Another way to find extra money in your home is to convert part of it into an apartment to rent, or rent out your home on Airbnb when you’re away. Use the rental income to pay down the mortgage.

How To Set Up Extra Mortgage Payments With Your Lender

Before choosing one of these strategies, consult with your lender to make sure it doesnt charge a prepayment penalty.

Also, learn how to properly send payments and ensure that the money will be credited toward your principal.

  • The lender may require you to mail a separate paper check. If so, you should indicate in the memo field that you want those funds to apply to your principal and/or include a separate note specifying this
  • Your lender may allow you to make extra payments over the phone or online/electronically. In this case, ask how to properly indicate that the money should go toward loan principal
  • You may be able to automate an accelerated payment schedule with your lender so that the funds will be withdrawn from your bank account and applied to your mortgage balance automatically. This approach is recommended if you pick a biweekly payment strategy

Check that your extra payments have been received and applied to your principal as intended.

To do so, monitor your loan account and mortgage statements regularly.

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Years Vs 15 Years Of Payments

30 Years of Payments
*You take out a $200k, 30-year mortgage at 4.61% APR

In order to pay off this 30-year mortgage in 15 years, you would need to pay an extra $515/month. Thats a big step up from the $1,026 monthly payments. Bi-weekly payments provide a good middle ground.

Bi-weekly payments add up to another $86/month, but that extra money will shorten your mortgage payoff by four and a half years. The difference between a biweekly program and the do-it-yourself end of the month payments is only $261. Third-party programs often have a set up cost of $300 plus additional fees, but you can get the same results without the fees with a DIY plan.

Make One Extra Mortgage Payment Per Year

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Many homeowners choose to make one extra payment per year to pay off their mortgage faster.

One of the easiest ways to make an extra payment each year is to pay half your mortgage payment every other week instead of paying the full amount once a month. This is known as biweekly payments.

When you make biweekly instead of monthly payments, you end up adding one extra payment each year.

However, you cant simply start making a payment every two weeks. Your loan servicer could be confused about getting irregular, partial payments. Talk to your loan servicer first to arrange this plan.

You could also simply make a 13th payment at the end of the year. But this method requires coming up with a lump sum of cash. Some homeowners like to time their extra payment with their tax return or with a yearly bonus at work.

However you arrange it, making an extra payment each year is a great way to pay off a mortgage early.

As an example, if you took out a mortgage for $200,000 on a 30year term at 4.5%, your principal and interest payment would be about $1,000 per month.

Paying one extra payment of $1,000 per year would shave 4½ years off your 30year term. That saves you over $28,500 in interest if you see the loan through to the end.

Paying down your mortgage balance quickly has other advantages, too.

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Get A Home Mortgage That Fits Your Budget

One of the biggest mistakes people make when choosing a mortgage is to focus on finding the lowest monthly payment. But the real key to building wealth long term is to focus on the total cost. Heres a clue: We suggest a 15-year fixed-rate conventional loan. And heres another handy guideyoull know you can afford a mortgage if the monthly payments are no more than 25% of your monthly take-home pay.

If youre looking to pay off your mortgage faster, consider refinancing. The right deal could save you a ton of interest and help you pay it off way sooner.

About the author

Ramsey Solutions

Ramsey Solutions has been committed to helping people regain control of their money, build wealth, grow their leadership skills, and enhance their lives through personal development since 1992. Millions of people have used our financial advice through 22 books published by Ramsey Press, as well as two syndicated radio shows and 10 podcasts, which have over 17 million weekly listeners.

Should You Pay Off Your Mortgage Early Or Refinance

Do you want to pay off your mortgage faster because youre worried about how much youre spending on interest?

If youre simply concerned about your mortgage interest rate, consider refinancing to a lower rate and maybe a shorter term instead of making extra payments on your existing mortgage.

But if you already have a competitive interest rate and an ideal loan term, you probably dont need to refinance. You may be tempted to pay less interest by paying off your mortgage faster.

As you make your decision, consider whether you could earn more investing in securities than youd save by paying down your mortgage balance more quickly. Investing that money in a taxpreferred IRA could offer more financial peace of mind than owning your home outright sooner.

Any kind of investing can be risky. Check with a personal financial advisor before making any big moves if youre not sure about the risks youre taking.

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Paying Off A Mortgage Quicker Without Refinancing

Seeing the outstanding principal balance on a monthly mortgage bill can be defeating. If you’re just into a 30-year mortgage or have had one for years, that grand total of principal owed can look like a dim light at the end of a tunnel you’ll never reach.

Getting rid of that monthly payment can free your money for other things such as investments and can be an emotional lift. For couples nearing retirement, paying off a mortgage early allows them to have fewer bills in retirement. Paying down a mortgage is the best way to build equity in a home.

Get Rid Of Debt And A Large Payment

How to pay off a 30 year mortgage in 15 years

Another great benefit of refinancing is getting rid of debt faster and doing away with that large house payment for good. Refinancing can get you there quicker, and once you no longer have this payment, your expenses will be a lot lower.

If interest rates are only slightly lower than what you have now, you dont need to refinance from a 30-year mortgage to a 15-year mortgage in order to pay your home off quicker. Youre able to make extra payments towards your mortgage principal at any time youd like.

So you can keep your 30-year mortgage. Just double up the payments to pay it off like a 15-year mortgage.

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Is It A Good Idea To Consolidate Debt In A Mortgage Refinance

Paying off your mortgage isn’t a race, but paying it off in fewer than 15 years does have several benefits. You end up paying less when you pay more quickly. Knocking out your mortgage in fewer than 15 years also means you have less debt to worry about and less risk of not being able to make the payments on your home.

Should You Pay Off Your Mortgage Early

Whether you should pay your mortgage off early depends on many factors, including the interest rate of your current loan and your personal risk tolerance.

Start by considering the opportunity cost. If you repay your mortgage ahead of schedule, youre putting money into the mortgage when you could have used those funds for other financial priorities. Youll save on interest, of course, but if you invested the extra payments elsewhere instead of putting them toward your mortgage, you might find youd have earned a higher return.

On the other hand, if you know youre likely to spend that extra money if you dont put it toward your mortgage, making additional payments can be a good idea. The peace of mind that you get from owning your home mortgage-free can also be worthwhile, and is important to consider.

Also, think about how much cash you have available for emergencies. You dont want to tie all of your money up in your home and have no way to access it quickly if you encounter a crisis.

Ultimately, with mortgage rates still low, its generally better in the long run to hold a mortgage with a low rate now and to invest your extra cash. Still, you can check Bankrates mortgage payoff calculator to see how much you can save by settling your mortgage early if youre set on doing so.

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Choose An Accelerated Option For Your Mortgage Payments

An accelerated payment option lets you make weekly or biweekly payments. With this option, youre putting more money toward your mortgage than with a monthly payment.

Accelerated payments can save you money on interest charges. By accelerating your payments, you make the equivalent of one extra monthly payment per year.

When To Pay Off Your Mortgage On Time

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Its not always a good idea to put extra money toward your mortgage. Ask yourself these questions to figure out if you should pay your mortgage on time instead of early:

  • Do I have other debts to pay off? Credit cards and loans typically have higher interest rates than mortgages, so they accrue interest faster. Youll save more money if you pay down high-interest debts first.
  • Do I have other financial obligations to consider? Contributing money to your retirement account and emergency savings account are important financial goals. If these financial goals are lacking, consider funding these before putting extra money toward your mortgage.
  • Do I have other big expenses coming up? If you need to save up for something big, like your childs college tuition or a new car, then you might want to focus on these goals before paying down your mortgage.
  • Does my lender charge a prepayment penalty? If youre not sure whether your mortgage comes with this fee, call the lender and ask. Youll need to calculate the penalty and figure out if you still come out ahead.

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Own Your Home Faster And For Less

Of all the benefits to refinancing your home, paying off your mortgage in less time is the biggest. Reducing the term of your loan by refinancing can not only shave years of payments. It can save you tens of thousands of dollars in the process over the life of your loan.

Because paying off your home earlier reduces the overall amount of interest youll pay, it could let you to retire earlier, travel more, or put extra cash in your pocket. Youll increase your homes equity faster. Youll not only own your home in less time, but youll pay much less to own it. Talk to one an Ark Mortgage Advisor to see how you could benefit from refinancing your home to shorten your term.

Should You Pay Off A Mortgage Before You Retire

If youre like most people, paying off your mortgage and entering retirement debt-free sounds pretty appealing. Its a significant accomplishment and means the end of a major monthly expense. However, for some homeowners, their financial situation and goals might call for keeping a mortgage while attending to other priorities.

Lets look at the reasons why you mightor might notdecide to pay off a mortgage before you retire.

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How To Pay Off Your Mortgage: Step

While the process of paying off your mortgage typically takes decades, crossing the finish line requires a few extra steps. Lets review the steps it takes to pay off your mortgage:

  • Request a payoff letter from your lender when youre ready. Remember that allowing the good-through date to pass and additional payoff letter requests may incur extra fees. Request only when youre ready.
  • Make the payment. Wire or transfer funds to your lender as outlined in the payoff letter.
  • Secure refunds if necessary. Cancel automatic monthly mortgage payments, update your mailing address if it has changed and follow up on your escrow account to determine the refund amount.
  • Send the Discharge of Mortgage letter to your county. Determine what your local regulations are around this process and be sure the Registry of Deeds receives the letter.
  • Save for ongoing payments. Contact your homeowners insurance company and let them know youve paid off the mortgage and to remove any billing information associated with your lender. Save for lump sum property tax payments.
  • Celebrate paying off your mortgage.You paid off your mortgage and deserve to kick up your feet and celebrate. Now you can use the extra money to save or make payments in other areas, like putting money into your emergency fund or paying off credit card debt.
  • How Do I Pay Off My Mortgage Early

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    One way to pay off your mortgage early is by adding an extra amount to your monthly payments. But how much more should you pay? NerdWallet’s early mortgage payoff calculator figures it out for you.

    Fill in the blanks with information about your home loan, then enter how many more years you want to pay it. The calculator not only tells you how much more to pay monthly to pay down your principal faster it also shows how much you’ll save in interest.

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    You Might Not Want To Pay Off Your Mortgage Early If

    • You need to catch up on retirement savings: If you completed a retirement plan and find you arent contributing enough to your 401, IRA, or other retirement accounts, increasing those contributions should probably be your top priority. Savings in these accounts grow tax-deferred until you withdraw them.
    • Your cash reserves are low: You dont want to end up house rich and cash poor by paying off your home loan at the expense of your reserves, says Rob Williams, managing director of financial planning at the Schwab Center for Financial Research. He recommends keeping a cash reserve of three to six months worth of living expenses in case of emergency.
    • You carry higher-interest debt: Before you pay off your mortgage, first close out any higher-interest loansespecially nondeductible debt like that from credit cards. Create a habit of paying off credit card debt monthly rather than allowing the balance to build so that youll have fewer expenses when you retire.
    • You might miss out on investment returns: If your mortgage rate is lower than what youd earn on a low-risk investment with a similar term, you might consider keeping the mortgage and investing what extra you can.
    • You need to diversify: Your house is just as much of an investment as whats in your portfolio. And overconcentration carries its own riskseven when its in something as historically stable as a home. Maintaining your mortgage allows you to fund other asset classes with possibly more growth potential.

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