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Pay off Mortgage Early

4 methods to pay off your mortgage early

Some homeowners are eager to get out of mortgage debt early. The reasons range from the psychological pressure of being indebted to slashing interest payments.

For retirees, paying off your home loan early can help you increase your cash flow. This is especially beneficial when you transition into a fixed income.

For some folks, getting rid of debt is a stress relief, more than a financial strategy. These homeowners might not like the emotional and mental impact of owing money.

And, finally, by paying down your mortgage ahead of time you will reduce the amount of total interest you pay on your loan. This can be a substantial savings. The bigger the loan and the more time you pay on it, the more interest you’ll owe. You can check Bankrate’s Mortgage Payoff Calculator to see how much you can save by settling your mortgage early.

Whatever your reason, we have strategies that can help you achieve your goal.

4 methods to pay off your mortgage early

Paying off debt early is a feasible goal if you have a budget, extra cash and an early-payoff plan of action. Here are four ways homeowners can get rid of mortgage debt and own their house outright.

1. Make extra payments

There are two ways you can make extra payments that will speed the paying-off process. The first way is to split your monthly mortgage payment in half and make bi-weekly payments instead. By doing this, you’ll end up making the equivalent of 13 months of mortgage payments instead of 12. This tactic might be easy for some homeowners because it’s barely noticeable in the monthly budget.

You’ll want to speak with your lender about whether they accept bi-weekly payments, some might not. In this case, it’s up to you to set aside those bi-weekly payments, but you’ll make them in one shot each month. The benefit of that extra annual payment is still there, but without the convenience of the bank allowing monthly payment splitting.

The second approach is to pay more each month to chip away at the principal faster, which can save you tens of thousands of dollars over the life of your loan. For instance, let’s say your 30-year mortgage is $250,000 and your interest rate is 4 percent. If you make an additional $100 monthly payment to the principal balance of your loan, you’ll shave off four years and $27,957 from your mortgage.

This can be a better tactic than refinancing as it doesn’t lock you into a payment. So, if for some reason, you can’t add more to your monthly mortgage payment you won’t be penalized.

If you go this route make sure to check with your lender that the payments will be applied in the correct way to reduce the principal, not prepay the interest. You’ll also want to make sure they understand the extra payment is not for the next month’s mortgage payment.

2. Refinance your mortgage

Refinancing your mortgage to pay it off early only makes sense if you can get a lower interest rate. Keep in mind, there are fees associated with refinancing so you want to make sure the savings cancels out the cost of refinancing.

Refinancing into a shorter-term loan, such as going from a 30-year mortgage to a 15-year mortgage, can also help bring down your interest rate while putting you on the path to early payoff. Use Bankrate’s mortgage calculator to compare payments and total interest between 30-year and 15-year terms here.

3. Recast your mortgage

Mortgage recasting is different than refinancing because you get to keep your existing loan, you just pay a lump sum toward the principal and the bank will adjust your amortization schedule to reflect the new balance. This will result in a shorter loan term.

One major benefit to recasting is that the fees are significantly lower than refinancing. Usually, mortgage recasting fees are just a few hundred dollars. Plus, if you have a low interest rate, you get to keep it. On the flip side, if you have a high interest rate, refinancing might be a better option.

4. Make lump sum payments toward your principal

An alternative to recasting is to make lump-sum payments to your principal when you can. Homeowners who get large bonuses or those who inherit money or sell valuable items, might choose to use the extra cash to pay down the principal. Since VA and FHA loans can’t be recast, lump-sum payments might be the next best thing. Also, you’ll save yourself the bank fee for recasting.

With some mortgage servicers, you must specify when extra money is to be put toward principal. Check with your servicer if you are unsure how additional payments will be applied.

Young Woman with Face Mask at Office

How technology will empower real estate’s new normal amidst COVID-19

In Ontario, the government is gradually reopening the economy, allowing facilities from retail stores and parks to open with restrictions to prevent COVID-19 spread. Premier Doug Ford hasn’t set hard deadlines for things to go back to normal completely, but over the next few weeks, people are expected to slowly return to their offices — with caveats.

“If there are two words that will characterize the post-pandemic world, it would be behavioural change,” says Ram Srinivasan, managing director of consulting at JLL Canada.

JLL recently wrote a guide on how companies can plan for office re-entry, covering issues like how to reconfigure the office to accommodate social distancing, and using technology as part of this strategy.

Bridging the gap with technology

Srinivasan notes that workflows and ecosystems could look “radically different” in the future. “For example, during the pandemic, we are seeing increased demand for virtual site visits,” Srinivasan says. JLL itself uses Blackbird, a London-based provider of cloud computing solutions, to facilitate these visits. “Even before the pandemic, at JLL we had been making strategic investments in these areas to support our clients and transactions professionals and this is likely to only accelerate once the ‘next normal’ arrives,” Srinivasan says.

The pandemic has put more of a spotlight on the tech abilities of companies, who are either seeing the benefits of their technology platforms or finding gaps in their capabilities.

“The environment we find ourselves in now will prompt a rethink across every sphere, from smarter workplaces and buildings to smarter communities and cities,” says Srinivasan.

How work will change

Srinivasan anticipates that there will be more investment in virtual collaboration tools, but because people are social creatures, workspaces that take a hybrid approach that allows for both face-to-face interaction and virtual working is the most likely scenario, he says.

Remote working technology, robotics for health screening, Internet of Things technology, and unmanned vehicles will become more important for replacing some human interaction.

Commercial office spaces will feel an impact even as COVID-19 restrictions are gradually lifted. A four to six-phase re-entry process is likely for most companies, Srinivasan says, but some workers may not even return with those phases.

In JLL’s published guide, the firm notes companies could consider incorporating more touchless technology, redrawing floor plans and limiting desk sharing. Companies can also use technology to monitor access and occupancy on their floors to control the density of spaces.

“Space demand will evolve as the pandemic response evolves and we move into a next normal ecosystem,” says Srinivasan. “There are several forces at play here, but there are two that impact space demand significantly. The workforce could be more open to remote work in the future. At the same time, social distancing norms could mean workspaces that are not as densely packed.” Both strategies would be responsible strategies for shaping office demand, Srinivasan notes.

Regardless of how the COVID-19 situation evolves, integrating digital technology will only continue to accelerate with commercial real estate operators and office spaces.

“As always, the most adaptable will thrive in the next normal,” Srinivasan says.

Author: Jessica Galang