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Early Mortgage Payoff: Strategies to Save Thousands

Paying off your mortgage ahead of schedule is a smart financial move that can lead to substantial savings. Here are effective strategies to consider:

1. Utilize the 1/12 Rule:

Divide your monthly principal payment by 12 and add that amount to each monthly payment.

This results in making the equivalent of 13 payments a year, helping you pay off your mortgage faster.

2. Create a Savings Account:

Deposit one-twelfth of the monthly principal payment into a savings account each month.

Accumulate these savings to make an extra 13th payment, accelerating your mortgage payoff.

3. Adopt Biweekly Payments:

Pay half of your mortgage payment every two weeks, resulting in 26 half-payments annually (equivalent to 13 full payments).

Ensure your mortgage servicer supports biweekly payments before adopting this strategy.

4. Make Lump-Sum Payments:

Make occasional lump-sum payments towards the principal when you come into extra funds (e.g., bonuses, inheritance, tax refunds).

These additional payments directly reduce the outstanding loan balance.

5. Refinance to a Shorter Term:

Consider refinancing your mortgage to a shorter term with a lower interest rate.

While monthly payments may increase, the overall interest expense will significantly decrease.

Example: Refinance from a 30-year mortgage to a 15-year loan for substantial long-term savings.

Key Considerations:

  • Verify that your mortgage servicer supports additional payment strategies like biweekly payments.
  • Be aware of any potential closing costs associated with refinancing.
  • Consult with a financial advisor to determine the most suitable strategy based on your financial situation.

Achieving early mortgage payoff necessitates a strategic approach. Implementing one or a blend of these strategies could lead to substantial savings, potentially amounting to tens or even hundreds of thousands of dollars over the loan’s duration. If you’re looking to optimize your financial situation, considering money from a will could also be a valuable aspect in this process.

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