How to pay off a mortgage early

For most people, a mortgage is the largest debt they must pay monthly, In addition, mortgages are usually the most long-term debt a consumer has.  While there are tax benefits to having a home mortgage, some prefer to be able to pay these loans off in a shorter period of time than the standard 30-year mortgage. While it may seem overwhelming, there are some methods that may be used to pay a mortgage faster.

Consider refinancing

During 2012 and continuing in 2013, average mortgage interest rates are very low. In many cases, mortgage rates are below four percent. For a homeowner who has 25 or more years left to pay on a 30 year mortgage, refinancing their loan and taking a 15 year mortgage can mean a considerable savings in time and interest payments. Before considering refinancing a home, it is important to evaluate fees, if the new mortgage will result in higher payments and what the closing costs of the loan will be.

Extra payments can help

For a homeowner with a 30 year mortgage, it may be possible to make additional payments on their mortgage on a monthly basis. For example, a homeowner who has a monthly mortgage payment of $1,000 each month may elect to make a payment of $250 each week for the life of the loan. In this case, 52 weekly payments would total $13,000 versus $12,000 if monthly payments were made. This may reduce mortgage length by as many as six years.

Principal reduction

Another easy method for reducing the term of a mortgage is through principal reduction. Extra payments monthly will reduce the term of a loan but, one time lump-sum payments accomplish the same thing. Homeowners who win the lottery, get an inheritance or get an annual bonus may consider sending a lump-sum payment to their lender. Many lenders will require the borrower to specify this amount is to be used to reduce the principal amount of the loan. In this case, provided the borrower continues to make the same monthly payment after a principal reduction, the loan will be paid off faster than if no lump sum payment was made.

Most people understand that an investment in a home is a long-term obligation. However, there are several methods of reducing the overall term of the loan. Before a homeowner makes any additional payments or refinances their loan to reduce the loan term, it is important to review loan documents and make sure there is no prepayment penalty. 

How a 2-1 mortgage buydown works

During difficult economic times, a new homebuyer may think that a 2-1 buydown is the answer to their dream of home ownership. However, before getting too excited about this program, is important to understand what it can and cannot do. These loans have specific requirements and may not be as appealing as one might think.

The Federal Housing Administration (FHA) offers a 2-1 buydown for new home purchase loans. However, it is not without issues and potential pitfalls. In effect, a buydown allows a borrower to lower their interest rate on their home purchase loan by 2% during the first year and 1% during the second year. Therefore, those who are approved for a loan with an interest rate of 6% may "buydown" the rate to 4% during the first year and to 5% during the second year.  However, during the third year, the interest rate would go back up to 6%. This buydown does not come free; in fact, the lender will charge a fee which is equivalent to the interest that would be paid during those two years.

Why would a borrower pay upfront for something they could easily pay over 24 months? 
If the seller of a home would pay the fee, the buyer would realize substantial savings. This would be part of a seller concession, and may allow the borrower to be approved for a higher loan amount. In some cases, the lender may waive the fee, or may offer a credit from the lender to the borrower. In fact,

What is a 5/1 Jumbo Mortgage?

Those who are long time mortgage brokers often report clients being confused by various mortgage terms. In order to understand what a 5/1 Jumbo ARM is, one must first understand the terms individually and then see how they work together.  Here are some brief explanations of the terms that must be clarified:

• 5/1 - According to the Federal Reserve, a loan that is quoted as a 5/1 is called a hybrid mortgage. These types of loans combine a fixed rate for a specific period of time (in this case a five year period) and then is subject to a change in rate on a specific basis (in this case, each year).
• ARM - More commonly known as an adjustable rate mortgage. According to Freddie Mac, these loans are popular because they typically offer the home buyer an opportunity for a lower starting interest rate allowing some to qualify for a mortgage with more ease.
• Jumbo loan - According to Investopedia, jumbo loans are defined as "....not eligible to be purchased, guaranteed or securitized by Fannie Mae or Freddie Mac...." For many investors, this may mean the loans are more risky than traditional mortgage loans. 

As of 2014, Fannie Mae conforming loans are loans that are less than $417,000 (except as provided for high cost areas) for a single family home. These limits are subject to change.

Defining a 5/1 Jumbo ARM

Based on the information that is contained in the definitions above, a 5/1 Jumbo ARM loan is an adjustable rate loan, in an amount in excess of $417,000 (except in certain