How to Pay Off Your Mortgage Early: Six Steps for Early Mortgage Payoff

February 15th, 2010

Facing retirement, or just want to be debt free? Use mortgage calculators to help you plan an early payoff. Set a goal, review your monthly budget and use mortgage calculators to help you plan how to pay off your mortgage early.

Paying off your mortgage early can be a good idea if you’re close to retirement and want to reduce your fixed living expenses or you just flat out hate being in debt.

So how do you do it?

1. Set a goal for when you want the mortgage paid off. Consider the target date within the framework of your financial life as a whole. The year you plan to retire might be a worthy goal, or perhaps the time you send your kids off to college.

2. Use the early payoff mortgage calculator. Enter the original mortgage balance, loan term, interest rate and the number of payments you’ve made already. Then enter the number of years you would like to have the mortgage paid off, and hit compute. The calculator will show exactly how much extra you must pay each month to achieve your goal. Say, for instance, you took out a 30-year, $100,000 mortgage at 6% interest five years ago, and you want to pay it off in 10 years. To do so, you’d have to pay $433.54 on top of your current $599.55 monthly payment.

3. Get a reality check. Look at your monthly budget, and estimate how much extra you could pay toward your mortgage each month. If you don’t have a solid monthly budget, this is a good time to take stock of your income and expenses and create one.

4. Adjust your goal. If you can’t afford to meet the extra monthly payment to reach your goal, use the early payoff mortgage calculator again to see what you can afford. Instead of paying off your mortgage in 10 years, for instance, see if you could manage it in 13. Or how about 15 or 20 years?

5. Estimate your savings. If you need some additional motivation for paying off your mortgage early, use an amortization calculator to compare the total amount of interest you’d pay under different loan terms, such as 30 years compared to 15 or 20 years. The amortization calculator also provides a full amortization schedule.

6. Consider refinancing. With today’s rates at near-historic lows, you might be better off refinancing your 30-year mortgage to a 15-year mortgage at a lower rate. Use the refinancing calculator to compare your existing mortgage to terms of a new loan. If you’re not sure you can afford a higher mortgage payment each month, you’re better off with a longer loan term and paying whatever extra you can to pay off the mortgage early.

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