According to US Census Bureau, 63% of homeowners in the US have mortgages. 

Mortgage payoff can feel like a race. Each month, your mortgage balance declines while your mortgage repayments increase. It can feel like you’re running towards a finish line but you have no idea what happens when you cross it. 

In reality, it’s not that dramatic. Still, there are some things you need to know to help you manage your finances after your mortgage payoff.

In this post, you’ll learn about the actions you should take before and after your mortgage payoff.

How Much Will I Need to Pay?

The amount you’ll need to pay to meet your mortgage may be different than what you borrowed. This is because most mortgage loans are “amortized.”

Each monthly payment you make goes toward both the principal (the amount you borrowed) and the interest (the cost of borrowing the money).

At the beginning of your loan, the majority of each payment goes toward paying the interest. But over time, as you pay down the principal, the amount of each payment that goes toward interest decreases. 

The good news is that you can use this to your advantage. If you make extra payments toward the principal of your loan, you can “prepay” it. This will reduce the amount of interest you’ll have to pay in the long run.

How Do I Prepay My Mortgage?

If you want to prepay your mortgage, you have a few options. You can make more payments each month, make a lump-sum payment, or refinance your loan.

Making more payments each month is the simplest way to prepay your mortgage. You can add the extra amount to your regular monthly payment.

If you have the money available, you can also make a lump-sum payment. This is a single payment that’s applied to the principal of your loan. For example, if you have $10,000 to apply to your mortgage, you can make a lump-sum payment plan of $10,000.

Finally, you can refinance your loan. Take out a new loan with a lower interest rate and use the proceeds to pay off your existing mortgage. This can save you a significant amount of money in interest over the life of your loan amount.

What Happens After I Pay Off My Mortgage?

Once you pay off your mortgage, you’ll own your home outright. This means you’ll no longer have a monthly payment to make.

You can use the money you would have. Otherwise use it to pay your mortgage to save for retirement, travel, or anything else you want.

You may also want to consider refinancing your home to take cash out. This means taking out a new loan that’s larger than your existing mortgage. Learn more about FHA loans vs Conventional loans here.

Exploring Mortgage Payoff 

If you’re nearing the end of your mortgage payoff, congratulations! Here are a few things to keep in mind as you enter the final stretch. Make sure you’re on track to make your last payment on time.

Missing a mortgage payment can result in a late fee, so it’s important to stay on top of things. Keep in mind that your mortgage lender may not allow you to make partial payments after a certain point.

Once you’ve made your final payment, be sure to celebrate! It’s a big accomplishment and you should be proud.

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Jane