Refinance To 15 Years
If you dont trust yourself to be diligent with these methods, you could always refinance to a 15-year mortgage. Doing so will force you to pay the higher payment, which gets your mortgage paid off more quickly. Youll typically get a better interest rate at the same time.
Paying Off Your Mortgage Early
Paying off your mortgage in half the time gives you the freedom to make decisions that impact your life in big ways, such as retiring early or taking a job you love versus a job that pays the bills.
With some hard work now, youll gain freedom in the future. Stay focused on your goal, and before you know it, youll be mortgage-free.
So thats how to pay off your mortgage in half the time.
About The Author
Holly Welles is a real estate writer with an interest in helping readers find clarity in all the financial confusion that comes along with homeownership. You can read her latest tips on her blog, The Estate Update, or keep up with her Twitter account .
Should You Refinance Your Mortgage Now
Despite the many benefits of mortgage refinancing, one should not obtain a new loan blindly. It is recommended that borrowers consider their credit score, estimated new interest rates, and the cost of debt for the new loan.
Although there are so many benefits of mortgage refinancing, obtaining a mortgage refinance is only favorable for borrowers with good credit. The successful borrowers likely pay the new loans at lower interest rates. Also, the monthly payments are probably lower than for the previous loans.
On the other hand, some borrowers with poor credit scores find it difficult to get mortgage refinancing offering reduced current mortgage refinance rates.
Keep Your Payments The Same When Your Interest Rate Drops
If you have some of your loan on a floating rate, consider keeping your payments the same if interest rates drop. That way, youll pay the principal off faster, reduce your outstanding home loan balance, and you could pay less interest in the long run.
Best of all, you could become mortgage free faster.
Make adjustments to your home loan repayments through ASB Home Central. You can adjust your repayment dates, frequency and amount in a few minutes on your mobile or desktop today.
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Why Refinance Your Mortgage
Below are some of the most common benefits homeowners realize when they refinance their mortgage in Canada:
- Lower interest rates: One of the primary reasons why people choose to refinance is due to dipping interest rates. Even though you will have to pay some fees and penalties for breaking your current mortgage contract, the long-term savings youll realize with a lower rate may very well outweigh the initial cost.
- Lock in an interest rate: Amidst a backdrop of rising rates, many Canadians are choosing to refinance their mortgage in order to lock in a longer term rate in anticipation of higher future rates.
- Debt consolidation: If you have several different loans with varying payments and interest rates, you may be struggling to keep up. Refinancing a mortgage gives you the ability to consolidate your big payments and debts into one long-term loan. This allows you to have a single interest rate, which is much more manageable than having separate terms for auto loans, credit card debts and other lines of credit.
- Home equity access: As you pay off your mortgage, you build equity in your home. You can calculate your equity simply by subtracting the amount you have left to pay off your mortgage from the total market price of your home. By refinancing a mortgage, you can tap into this equity, using it to renovate or upgrade, make investments or pay for education for you or your children.
Refinance To A Shorter Term
The 30-year home loan is mostpopular, but lenders offer shorter loan terms, too. A 15-year loan is acommon alternative, and many lenders also offer 10-, 20-, and 25-year loans.
Shorter repayment periods mean higher monthly payments, butless interest over the life of the loan.
Lets compare a 20-year term to a30-year term.
Most 20-year mortgages carry lowerrates than 30-year mortgages. Typically, 20-year rates can beanywhere from one eighth to a quarter percent lower.
- Lets say youre financing a$250,000 loan on a 30-year term at 3.75%. Your principal and interest paymentswould be about $1,150 per month
- Using the same loan amount, but with a20-year term at 3.625%, your monthly payment would be $1,450
- Youd pay a few hundred more per month, butyou would be mortgage-free a decade sooner
The best part? The savings in interest onthat 20-year mortgage would be over $65,000 if you kept the loan untilit was paid off.
Another benefit of refinancing toa shorter term is that you dont have to start over with 30 more years.
For many homeowners who are wellinto their original mortgage term, starting over with another 30 years worth of interest mightnot make sense.
But with a 15-year refinance, you could lock in a low interest rate and a shorter loan term to pay off your mortgage faster. Just note: the shorter your mortgage term, the higher your monthly mortgage payments will be.
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Remortgage For A Cheaper Shorter Deal
If your current mortgage provider is making it expensive or difficult to pay off your mortgage early, consider getting a remortgage deal. By switching to a new mortgage provider, you can often get a cheaper mortgage interest rate for up to 5 years of the mortgage term. You may also be able to get a shorter mortgage term.
Just be careful as remortgaging will probably activate the early repayment penalty fee on your current mortgage, and you will probably have to pay a fee to switch mortgage providers. Do the sums before to see if you could save. Remortgage deals generally work out better when you are coming close to the end of your current fixed rate mortgage deal, but its always good to shop around well in advance just in case.
Cons Of Paying Off Your Mortgage Early
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If you have credit cards or loans, its likely that the interest rate will be far higher than your mortgage interest rate. Overpaying on your mortgage can leave you with less money available to direct towards repayments on the more expensive debt.
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Certain mortgage products will charge an early repayment charge if you make overpayments beyond a specific amount. To avoid penalty fees, check the terms of your mortgage deal before you make an overpayment.
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Shorten Your Amortization Period
The amortization period is the length of time it takes to pay off a mortgage, including interest. The shorter the amortization period, the less interest you pay over the life of the mortgage. You can reduce your amortization period by increasing your regular payment amount. Your monthly payments are slightly higher, but you’ll be mortgage-free sooner. Find out how much you could save by shortening your amortization period with our mortgage payment calculator.
How Much Of My Mortgage Have I Already Paid Off
Depending on how far along you are on repaying your mortgage, moving to a shorter-term loan can increase your monthly payments, but it can also shrink them along with total interest costs if current rates are lower.
For example, cutting your loan term in half after paying it down for only a handful of years can significantly increase your monthly payment. But shaving a couple years off a loan that has been repaid over a long period of time will have less of an impact, and could even slightly decrease your monthly payment.
To get a better sense of where you stand, try using a mortgage amortization calculator. “Amortization” refers to the way the principal and interest is repaid. Interest payments tend to be higher at the onset, while the amount of your monthly payment going towards principal increases as the loan is repaid. An amortization calculator will allow you to see the principal and interest paid with each payment, and the remaining balance during any month of your loan.
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Get An Offset Mortgage
When you come to remortgage, you might benefit from an offset mortgage. An offset mortgage provides a link between your savings account and your mortgage with the same lender.
Your cash savings are offset against the size of the outstanding home loan, so youll pay less in interest.
For example, you have a £200,000 mortgage and £10,000 in savings. Here, your £10,000 linked savings reduce your mortgage by the same amount, meaning your debt goes down to £190,000 .
As monthly payments are usually worked out on the whole debt , youll pay less interest and overpay your mortgage without penalty, meaning you could pay it off sooner.
Offset mortgages are generally best for higher tax rate payers or those with large sums in savings.
Retiring A Mortgage With Extra Payments
Many homeowners invest in home security systems to protect their property and personal assets. However, a security system will not protect the homeowner against financial disaster or bankruptcy. Making additional mortgage payments will shrink the total amount of interest paid over the life of the loan, and the borrower will pay off the debt more quickly. In addition, the home equity will grow at a faster pace when extra payments are applied to the loan. This provides for a margin of protection by lowering the interest costs. This method gives the property owner a home free and clear of debt. More payments on the principal of the loan equate to assets earning interest at the same rate as the interest rate on the loan.
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Dial Up The Amount You Repay
Beyond limiting the loan amount, the only way to pay less interest is to repay more or repay sooner. Or both!
You can structure your mortgage more in your favour by making higher repayments than required. Heres how:
- Top up your repayment each time. Even most fixed rate mortgages allow you to increase your repayments by up to 20% without any penalty.
- Add extra lump sums as you go.
- Shorten the term of your loan, which will increase your repayments.
- Pay half your monthly amount each fortnight. Because there are 26 fortnights a year, this gives two more payments than you would have had.
- If interest rates drop, keep your repayment at the same level it was.
- Each time you receive a pay rise or a career break, keep your lifestyle the same and funnel the difference into your mortgage.
Though each additional amount may seem a small increase, it can shave off tens of thousands in total interest. Run your numbers!
Many people retire with too much house, not enough saved. The choices we make with our mortgages can tip the balance more in our favour.
Reducing My Term With Overpayments
You can reduce your term without changing your monthly payment by making overpayments. This means your mortgage will end sooner so youll pay less interest overall.
To reduce your term, youll need to complete the steps below each time you make an overpayment. Otherwise, we may automatically recalculate your payments.
You can securely pay up to £12,000 through your hub. For payments over this amount, youll need to use a different payment method.
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How Much Extra Can You Pay Towards Your Mortgage
The amount of extra money you can pay off your mortgage without a fee can vary and will depend on the type of product you are currently on. Its important to check with your lender how much extra you can pay off your mortgage so you can avoid any potential early repayment charge .
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if you are on a fixed rate of interest most lenders allow you to pay up to 10% of your loan balance each year without incurring an ERC. This is called an annual overpayment allowance . If you go over your AOA, there could be an ERC
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if you are on a variable rate of interest such as a tracker rate, most lenders allow you to make unlimited overpayments without incurring an ERC
The above isnt the case for every lender so you should always check how much extra youre able to pay before deciding on any overpayments.
If youre an HSBC customer, you can log on to online banking to view details of your annual overpayment allowance or call our mortgage specialists on .
What Are The Benefits Of Paying More Towards Your Mortgage
If you have a repayment mortgage, your standard monthly payment is used to pay the interest that has accrued on the capital balance of your loan since your last monthly payment and some of it is used to reduce the balance.
When you make an overpayment to your mortgage, all of that payment goes directly towards reducing your mortgage balance . This has these key effects:
As your mortgage balance is lower, youll pay less interest on your balance. For most lenders this applies from the date you make any overpayment so the benefit is immediate.
As the balance reduces more quickly, your original mortgage term may shorten, enabling you to finish paying off your mortgage earlier.
As your mortgage term shortens, it means that you wont be paying interest for as long, potentially saving thousands of pounds.
When your mortgage balance reduces, it will give you a lower loan to valuation ratio. If you were to then switch mortgage rate or remortgage to a new lender, having a lower LTV could make you eligible for lower rates.
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Should I Overpay My Mortgage
Although a mortgage is one of the biggest debts you’re ever likely to have, it isn’t always the most expensive., personal loans and especially store cards often have a higher rate of interest on them, so if you have been unfortunate enough to accrue large debts with those types of credit, it’s likely you’ll be paying, relatively speaking, much more in interest.
If you have extra income or a lump sum of cash to use to lower your mortgage debts, it might be better to put that towards your more expensive debt first.
If your debts are generally under control, paying off your mortgage early makes a lot of sense, but there are other useful ways to make your money go further. For example, investing it into a pension scheme or a high-rate savings account could give you a greater return when you decide to retire. By then your mortgage may have already been paid off, too, so you’ll have more money to enjoy your retirement with.
On the subject of the future, which is uncertain, you may wish to protect your family and those who depend on you financially by investing in life insurance. Even if you decide to start making mortgage overpayments, is there a financial back-up in place should the worst happen to you?
Make sure to weigh up all your options first before deciding whether or not to pay off your mortgage early. Keep in mind both the advantages and disadvantages of paying off your mortgage early:
How To Pay Off Your Mortgage Early
8 Minute Read | September 13, 2021
So youre eager to join the nearly 40% of American homeowners who actually own their home outright.1 Can you imagine that? When the bank doesnt own your house and you step onto your lawn, the grass feels different under your feetthats freedom.
But the problem is youre currently stuck dragging around that ball and chain called a mortgagejust like most homeowners.
Dont worry. Well show you how to pay off your mortgage faster so you can finally join the ranks of debt-free homeowners. Lets get started.
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Overpay Your Mortgage Using Savings
You could be paying out more than double in interest each month than you can earn from your savings accounts. If your savings earns less interest than the amount you pay on your mortgage, then you will save more money by using these to pay-off your mortgage balance. However, you should make sure that you keep the equivalent of at least three months salary as an emergency fund. The table below shows that if you have £15,000 in savings at 1% this will earn you £150 in interest in 12-months, compared to an interest cost of £492 for the same amount on your mortgage.
| Balance | |
| £200 | £300 |
All calculations assume that interest is calculated and applied annually. Mortgage interest figures are maximums based on what you could pay on an interest-only mortgage over a 25-year term.
Reasons To Refinance Your Mortgage
Many people seek mortgage refinance for numerous reasons. Most common reasons one would consider a refinancing option include the need to improve the interest rates, cash out to renovate their asset, consolidate debts, shorten their loan term, among other reasons.
In this post, one should find the most common reasons for refinancing.
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