If I’ve recently had a mortgage approved or are already some way into my repayments, I may be thinking about how to repay the mortgage early rather than later.
So I’m eager to join the nearly 40% of American landlords who actually own their homes outright. Can you imagine that? When the bank doesn’t own your home and you step onto your lawn, the grass feels different under your feet—that’s called freedom.
But the problem is you’re currently stuck dragging around that ball and chain called a mortgage—just like most homeowners.
If you want to become a successful real estate agent, contact Illinois Broker Academy today to begin your real estate courses journey.
Don’t worry. We’ll show you how to pay off your mortgage faster so you can finally join the ranks of debt-free homeowners. Let’s get started.
3 Ways To Pay Off Mortgage Early
I explore some smart ways to shave interest – and years – off to repay the mortgage early.
Increase My Regular Repayment Amount
Paying more than my required repayment amount is another way to reach my homeownership goal earlier.
Example
John intends to contribute an additional $386 per month on top of his $2,315 monthly home loan repayment, paying $2,701 each month. Over the course of 12 months, he pays $32,412, which is roughly equivalent to two additional months’ worth of payments per year.
This will shave six years off John’s 25-year loan term as well as around $80,000 in interest.
- Original home loan repayment: $27,780/yr x 25 years (@ 4.9% p.a.) = $694,500
- Revised home loan repayment: $32,412/yr x 19 years (@ 4.9% p.a.) = $614,948*
Make additional lump sum payments
It’s feasible to make additional lump sum payments – especially during the early years of my mortgage. It can have a profound effect on how much my total home loan repayments will be and the length of time to own my property outright.
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Example
Tim’s required monthly repayment amount is $2,485 on a $400,000 loan with a loan term of 25 years. Over the term of the loan she’ll pay a total of $29,820 in one year ($2,485 x 12), and over 25 years, Tim will pay $745,500.
Five years into the loan, Tim receives an inheritance of $70,000. Dividing the money, she puts $40,000 into her mortgage and $30,000 into her bank account.
Making the lump sum repayment of $40,000 means that instead of paying off her mortgage after 25 years, he will reduce the loan term by more than three years – assuming her repayments remain the same – and save herself more than $70,000 in interest. The redraw balance will also slowly reduce in line with the loan term.
Set up a mortgage offset account
A mortgage offset account enables me to offset, or reduce, the interest charged on my mortgage by letting me pay down the principal loan amount with my savings.
Say if I have a mortgage balance of $400,000, and I put $20,000 into an offset account. By doing this, I’ll only need to pay interest on a balance of $380,000 ($400,000 – $20,000) rather than $400,000.
The more money I have in an offset account, up to the balance of the loan, the larger the savings and the earlier the mortgage can be paid off.
Planning to Refinance Your Mortgage?
If you intend to refinance to a mortgage you can pay off quickly, talk to your friends at Illinois Brokers Academy. Our most-recognized real estate classes show you the true cost—and savings—of each loan option. They coach you to make the best decision based on your budget and goals so get in touch with our representatives right away!