- October 5, 2022
- Posted by General Electric Credit Union
- 4 read
How to Pay Off Your Mortgage Loan Early
Whether you took out a fixed- or adjustable-rate mortgage, you may still have several years left in the loan term to pay it off. But what if you want to pay it off early? First, it’s important to confirm with your lender if they charge a fee for early payoff. If they do, that’s just a factor to consider before moving forward. Regardless, there are several strategies available that can help you put mortgage payments in the past, faster!
3 ways to pay off a mortgage loan early
1. Go the extra mile
While you can absolutely make the minimum payment due each month, putting in a little extra is actually advantageous. That’s because the extra amount will go toward the principle, or the amount you initially owed. In the long run, applying one extra mortgage payment each year can knock years off the term of your mortgage, including interest savings you gain!
Where will those extra funds come from? The best place to look is your budget. Review where your money is currently going to spot categories you could cut back in. For example, the average U.S. household has four streaming subscriptions.1 If you’re in this camp, consider nixing one or two and putting the savings toward mortgage payoff instead.
- Tip: After becoming a member of General Electric Credit Union (GECU), you’ll gain free access to Money Management. This robust tool, available to Online Banking and mobile app users, gives you a complete financial picture so you can strategize debt payoff with confidence.
If the last time you paid attention to your mortgage loan’s interest rate was when you applied for it, now is the time to change that. That’s because refinancing may be the perfect opportunity to make mortgage payments more affordable and give you a better chance of paying the loan off early. This process is simply trading in an existing mortgage loan for a new one. First check with your current lender to see what rates and terms are available. Then, shop around to see what their competitors are offering.
Whether or not now is the right time to opt into this strategy will depend on how rates are trending. Borrowing is more expensive during a rising-rate environment, and the rates available may not be better than the one you currently have. Always compare your existing rate to what’s currently being offered. If rates are higher, it’s best to put this strategy on the back burner until they fall again. Once you’re ready to submit an application, just make sure your credit score is in the best shape so you have access to the best rates and terms.
3. Change your type
If you do refinance, you’ll need to decide whether to stick with your current mortgage loan type, or to go with the opposite. When it comes to mortgages, there are two options: fixed- and adjustable-rate (ARM) mortgages. Which one is best for you will depend on several factors – including the rate environment.
An ARM allows you to lock in a rate for a set period. After the period ends, you’ll have to deal with rate adjustments. For example, a 5/1 ARM allows you to lock in a rate for the first five years. Demand for these types of loans goes up when rates are on the rise. That’s because lenders offer lower rates on them to offset their unpredictable nature. This may be perfect if you plan on moving, as an ARM will allow you to take advantage of a lower rate now and then potentially refinance into a lower fixed rate product later.
Fixed-rate mortgages have their moment during a low-rate environment, as homeowners can lock in a great rate and score a lower monthly payment as a result. Stay keyed into rate conditions so you can take advantage of this and potentially pay off your loan faster.
Tri-State homeowners choose GECU for their mortgage loans because we offer great rates, no early payoff fee, and resources that make loan payments a cinch. Check out all our free payment options, the benefits of Money Management, and what our experts are saying about rates in 2022. Interested in refinancing? Both current and future members alike are welcome to schedule an in-branch appointment online in advance. We look forward to talking through all the fantastic loan options we provide! Whether you opt for a fixed- or adjustable-rate loan, we know you’ll love the Credit Union difference.