Pay Off a 30 Year Mortgage in 15 Years Without Refinancing
Although refinancing can help you pay off your mortgage early and save money, it comes with significant downsides. Switching from a 30-year mortgage to a 15-year home loan locks you into higher monthly payments. This may make it harder to afford your mortgage if you lose your job or face financial difficulties.
You’ll also have to pay closing costs if you refinance. They usually equal 2% to 5% of the loan amount, which is a pretty big chunk of change. But luckily there are ways to pay off your mortgage early without refinancing and incurring closing costs.
How to Pay Mortgage Without Refinancing
Make Sure Your Finances Are in Order
Before you think about paying off your mortgage early, you should make sure your finances are in order.
If you have student loan or credit card debt, you may want to prioritize paying that off first. Credit cards and student loans usually have higher interest rates than home loans. So getting rid of that debt will save you more money than overpaying your mortgage.
You should also have a solid emergency fund in place in case you lose your job or need to make a major home repair. And if you’re not saving for retirement, financial experts agree that you should put any extra income into your 401k, not your mortgage.
Although having a paid off house will make it easier to live on a fixed income in retirement, you’ll still need a nest egg to cover your expenses. So don’t neglect saving for retirement in order to overpay your mortgage.
Check the Terms of Your Loan
Another thing to look into before you start overpaying your mortgage is the terms of your loan. Some lenders don’t allow you to make extra payments or put a limit on the amount you can overpay each year. Others may charge a penalty if you pay off your mortgage early. So review the terms of your loan and speak to your lender to see if it’s possible to pay off your mortgage early without refinancing.
Calculate How Much You Need to Pay
To pay off your mortgage in half the time, you’ll need to make a monthly principal payment in addition to your regular mortgage payment. How much you’ll need to overpay depends on the size of your loan and the interest rate. You can use a mortgage calculator to run the numbers and figure it out.
For example, say you have a $300,000 mortgage with a 4.5% interest rate. Your regular monthly payment would be about $1,520. To pay off the loan in 15 years instead of 30, you’ll need to contribute an extra $800 per month toward the principal.
That would bring your total housing payment up to $2,320 per month, which is pretty expensive. But the good news is that you don’t have to pay that much every month. Because you’ve chosen not to refinance, you can make your overpayments on your schedule.
If an emergency expense comes up and you can’t afford to make an extra payment one month, you can skip it without facing any real financial consequences. You’ll just take slightly longer to pay off your loan.
But if you can stick to the schedule and pay an extra $800 every month, you’ll save a whopping $136,000 in interest and cut your loan term in half. So if you can afford to do it, making extra mortgage payments without refinancing is a great way to save money and get ahead financially.
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