Whether you’ve found yourself feeling stuck in a long-term mortgage loan or simply want to get yourself started on a path toward living debt free in Merced County, paying off your mortgage early is a great place to start. There are many methods homeowners can use to reduce their loan terms, and here we cover the five primary methods most utilized when looking to reduce the size and time commitment of your mortgage loan.
Make Extra Payments
One of the most obvious methods to pay off your mortgage early for your Merced County house is by simply increasing the amount of your current payment each month or making additional payments throughout the year. Some mortgages established before 2014 may have fees associated with paying them off early, however. The Consumer Financial Protection Bureau (CFPB) in 2013 established new guidelines that became effective in early January 2014. These rules make it illegal to charge penalties for paying off a residential mortgage loan early, with a few exceptions. Before you begin making additional payments on your loan, it’s recommended to check your current mortgage loan contract.
Make Lump-Sum Payments
This method most often manifests itself as one additional month’s payment per year on the loan (larger payments can be made as long as personal finances allow it). This can effectively reduce a 30-year plan by nearly three and a half years, saving interest and moving households that much closer to living debt free in Merced County. Let’s take a look at an example from the Merced County housing market to see the changes.
A home loan of $250,000 using a 30-year term will have a rate of around 3.75%. Its monthly payment, with interest, would come out to about $1157.79. By making one extra month’s payment of $1157.79 every year, your debt will be paid off three years and 10 months sooner, all while saving you $24,686.34 in interest charges.
Another method many households utilize is using their tax return bonuses to help make additional payments each year, further increasing their savings.
Make Bi-Weekly Payments
If adding larger payments on top of your monthly payments seems like it may be a step too far for your monthly income, speak to your loan provider about switching to a bi-weekly payment plan. Instead of making monthly payments, you would pay half of your monthly bill every other week. Because there are 52 weeks in the year, that comes out to 26 payments or the equivalent of 13 monthly payments in one 12-month period. This can help spread that additional month’s payment over the course of an entire year, effectively reducing the financial strain. Make sure to check with your loan provider before making this change, as it may cause issues if done without their consent. This method can help homeowners in Merced County pay off their mortgages early.
Refinance
Homeowners contracted in a longer term plan, such as a 30-year or even a 25-year plan, often consider refinancing to one of their loan provider’s shorter term options. By taking a 30-year mortgage down to, as an example, a 20-year plan, your monthly payments would go up a few hundred dollars but you would be shaving off a third of your time in debt. Not to mention that most 20-year plans have a lower interest rate, effectively saving you thousands in interest alone.
Refinancing to a shorter term has become a much more desirable option for many homeowners caught in long-term plans. If you decide you want to reduce your debt at a quicker rate, check with your loan provider and see if refinancing will work for you. This can allow you to live debt-free in Merced County sooner.
Recast
Homeowners who are already contracted with a shorter term plan where refinancing wouldn’t result in significant savings may want to consider recasting their mortgage as a potential method to reduce it. With a mortgage recast, your lender would consider the remaining balance and term of your existing loan and recalculate the monthly payment amount. If you have made extra payments on your loan in the past, requesting a mortgage recast can reduce your monthly payment requirement, which may make it easier to pay it off more quickly.
You have options when you want to pay off the mortgage early for your Merced County home and reduce your time in debt. Be diligent when searching for a solution that works best for your personal finances. At Soldavi, we sincerely hope one of these methods can set you forward on a path to pay off your house faster and enjoy homeownership and living debt-free in Merced County!