The Top Mortgage Acceleration Payoff Methods

A home mortgage represents the largest expenditure that many people will ever make. The interest costs on a 30-year mortgage are significant, often more than double the principal amount of the loan. In addition, 30 years is a long time to pay on anything, even if it is your primary residence. The simple formula for paying off a mortgage sooner is to just pay more on the principal. Because this can be difficult to do, homeowners are inspired to look for other easy ways to reduce their mortgage term.

Extra Payment Per Year

Committing to pay an extra mortgage payment each year, meaning that you make 13 payments instead of 12, will make a big difference in how soon your mortgage is paid off. On a 20-year mortgage, you will pay it off in about 17 years and five months, saving a considerable amount of money. Some homeowners choose to make that extra payment at the time they receive their income tax refund or perhaps at the time of a Christmas bonus.

Biweekly Payments

Biweekly payments are often sold by companies that offer to set these systems up for you and charge a fee for maintaining the account. They offer similar mortgage acceleration to making an extra principal payment per year, because they essentially accomplish the same thing. With some mortgages, you can make a payment to the mortgage company of one-half of the normal payment every two weeks. Other mortgage holders will not accept a partial payment. In this case, you can deposit the biweekly payment amount into a savings account and make the normal payment from that account. When extra funds accumulate in the account, send it in as an extra principal payment.

15-Year Mortgage

Taking out a 15-year mortgage is a great way to accelerate your mortgage payoff. The interest rates are generally lower on a 15-year loan, and the payments are probably not as high as you would expect when cutting the loan term in half. Plus, a 15-year mortgage builds equity in the home much more quickly than a 30-year mortgage.

Mortgage Accelerator

Some companies offer mortgage acceleration software designed to calculate your monthly expenditures and use a home equity line of credit as a way to pay your mortgage more quickly. Essentially, these systems have you prepay your mortgage with any available discretionary income you may have. The fees for these programs are as high as $3,500. Most experts agree that while these systems work, you can accomplish the same thing yourself and save the $3,500.