As you near retirement, you might want to eliminate as much recurring debt as you can. Retirement is about relaxing without worrying about bills. To eliminate your mortgage payment, you can apply lump sums toward the balance whenever you please. There is no limit to the amount of the payment you can send your lender. However, it is important to understand you may face fees and penalties if you pay the loan off too soon.
Review your contract to determine if you will face prepayment penalties. If you have had the mortgage for at least five years, there is a good chance the prepayment penalties no longer apply. Prepayment penalties are designed to ensure the lender earns money if you pay your loan off ahead of schedule. Prepayment penalties may equal a portion of the interest or a percentage of the loan balance.Step 2
Pay up to 20 percent of the balance each year without penalty. Regardless of how long you have been paying on the loan, most lenders allow you to pay an additional 20 percent annually to pay off the debt faster.Step 3
Keep money in your savings. Avoid depleting your savings to pay the debt. As a general rule, you should keep enough money in your reserve to cover at least six months of household expenses and bills.Step 4
Understand paying lump sums does not necessarily reduce your payment. If your goal is to lower your monthly payment, you might want to hold on to your cash. In most cases, a lump sum payment is applied to the principal. Additional payment on the principal lowers the balance and helps you pay off the loan faster. If you want to reduce your payment, consider refinancing the loan.
Jeannine Mancini, a Florida native, has been writing business and personal finance articles since 2003. Her articles have been published in the Florida Today and Orlando Sentinel. She earned a Bachelor of Science in Interdisciplinary Studies from the University of Central Florida.