With the average interest on home mortgage loans in Texas rising from 3.22% to 3.45% over the last year, it might be time to consider taking care of that large debt once and for all. Take a look at our top tips for how to pay off a mortgage early and why this strategy can make such a big difference to your financial life.
Benefits of Paying Off Your Mortgage Faster
You’ll Save On Your Overall Interest
The sooner that you pay off your mortgage, the less interest you’ll have to pay on the loan. This can save you thousands of dollars over the course of your loan, depending on the Texas mortgage loan lenders that you’re working with.
You Eliminate a Substantial Monthly Payment
It’s likely that your monthly mortgage payment is one of your largest outgoing expenses. Removing this from your budget can leave you with a significant amount of, now, disposable income to spend in other ways.
You Can Use Your Freed-Up Money for Something Else
Without a large mortgage payment each month, you can reinvest this cash into other areas of your life. Whether that’s funding emergency savings, working on home renovations, or putting more into your retirement fund, your options are endless.
You Can Tap into Your Home Equity If Needed
If you ever need some additional funds in the future, having your home paid off will allow you to use some of that equity to take out a home equity loan. You’ll likely have access to more cash than you would have done had your home still had a mortgage attached.
You’ll Own Your Home Outright
While there are certainly financial benefits to paying off your mortgage early, the satisfaction of knowing that your home is completely yours is hard to beat. You’ll never have to worry about your home being repossessed and every penny you make from selling the property is yours.
Before making a final decision, you should also consider the possible downfalls of paying off your mortgage now.
Some mortgage providers will charge a prepayment penalty if you pay off your mortgage too early. Every lender is different, so be sure to check the terms and conditions of your loan before deciding that early repayment is your best choice.
Another consideration to take into account is other investments that you might need to make. Instead of putting additional funds into paying off your mortgage early, you may need that money to catch up on retirement savings or support an emergency fund.
Don’t leave yourself in a cash-poor situation where you may need to rely on high interest credit cards to pay for essentials. Ultimately, this would cost you more money than you would likely save through paying off your mortgage faster.
Tips and Techniques to Pay Off Your Mortgage Faster
One of the easiest ways to shorten the life of your mortgage loan is to pay more towards the principal balance each month. Paying an additional $100 dollars or more can cut several years off how long you’ll be paying the loan for. That means much less interest in the long run.
Remember, every penny counts. Even if you’re under one of Texas’s first time home buyer loans programs for low or middle income families, an extra $5 or $10 can make a big difference across a 30-year loan period.
You might be wondering how splitting your payment into bi-weekly rather than monthly can actually help you. But, over the course of a full year, those extra investments will add up to a whole additional month of mortgage payments.
When you take that into account over the years of your loan, you’ll still be shortening the amount of time it takes to completely pay it off. Which means that less interest is accruing every year, making your final repayment amount even smaller.
Round Up Every Payment
Mortgage payments are typically an uneven dollar amount, so round up to the nearest $10 when you can. You likely won’t notice a few extra dollars in your budget each month when you do this. But over the lifetime of your mortgage loan, this can still make a big difference.
If you suddenly find yourself with a large amount of unexpected cash from an inheritance, job bonus, or from selling assets, reinvesting this into your mortgage principal can significantly cut the lifetime of your loan.
When you apply for a mortgage loan, it’s important to understand if there are any prepayment penalties. But you should also keep in mind that penalties typically don’t apply to extra payments, only paying off the total remaining balance of the loan.
Making a lump sum payment can then help to make a significant dent in how much you owe, without paying a penalty at this point in time. Be sure to specify that you want these funds applied to the principal amount when you make the payment.
Recasting your mortgage is similar to refinancing, but you keep your existing loan instead of taking out a new one. You pay a lump sum towards the balance and your mortgage lender adjusts the amortization schedule to reflect the new balance.
This can be a great option to lower your monthly mortgage payment, while keeping the same interest rate and original loan. The fees to recast are also significantly lower than refinancing, usually between $200 and $400.
When it comes to mortgage loan rates, Texas is fairly average—it typically isn’t in either the highest or lowest brackets nationwide. With predictions of rates rising to 4% or higher by the end of 2022, now is a good time to consider refinancing.
For mortgage refinancing in Texas, it’s beneficial to work with a local provider who can tailor your plan to your specific circumstances. Moving over to a lower rate loan will cut the total amount that you owe, both each month and by the termination date. Alternatively, shifting to a 15-year mortgage can increase your monthly principal payment amount, but will usually come with a lower rate than 30-year loans.
Find Out How To Pay Off Your Mortgage Faster
Whether you’re looking to pay off your mortgage completely or invest some additional funds towards your home equity, Moody Bank is here to help.
We can help you with mortgage loans in Galveston, Texas and beyond if you’re applying for a new loan or looking to refinance. Check out our Mortgage Calculator to estimate monthly payments and total interest to give you a good idea of what you could be paying.
Our teams in Houston, Austin, Galveston, and Lake Jackson will work with you to compare rates and find the best solution for you. Contact our mortgage lenders today to get started!