mortgage early maui
Picture of 1155 Nahiku Road -- 2 homes -- $542,000

You have diligently saved up, or got some assistance with a down payment and are ready to get out of the rental market. But, like many Hawaii homeowners, you will have to take out a mortgage to finance your purchase. How do you pay off your mortgage early with the high cost of living on Maui?

Biweekly Mortgage Payments  

Biweekly mortgage payments is when you pay half of your mortgage payment every two weeks. This results in 26 half-payments, which equals 13 full monthly payments each year.  That extra payment can shorten your 30-year mortgage by eight years, depending on your loan’s interest rate.

How to Set Up a Biweekly Mortgage Payment:

1. Check with your mortgage company first. Some companies only accept extra payments at specific times or may charge prepayment penalties.

2. Include a note on your extra payment that you want it applied to the principal balance – not the following month’s payment.

3. Locate your monthly payment on your monthly statement and simply divide by two. For example: $2,500 divided by 2 = $1,250. $1,250 is your new biweekly mortgage payment.

4. If your lender does not accept biweekly payments, open a new bank account exclusively for your mortgage payment. Deposit your half-payment every two weeks and use that money to make your full mortgage payment on every second deposit.  

Make an Extra House Payment Each Quarter

When making an extra house payment each quarter, you can cut up to 11 years off your mortgage and save substantial interest. For example: On a $440,000, 30-year mortgage with 4% interest rate, you’ll save more than $125,000 in interest!   

Refinance – Or Pretend You Did

Finance advisors recommend that you take no more than a 15-year fixed-rate mortgage with a payment that is no more than 25% of your take-home pay. This can be difficult, if not impossible, in Hawaii Nei. Take out a 30-year loan, but recalculate your payment and pay as if it is a 15-year loan. This allows you to get the benefit of a 15-year loan without the commitment, and should adversity come your way, you can always fall back to the actual lower 30-year payment until you get back on your financial feet.  

Think about the possibilities if you combine one or more of the above strategies – how quickly the debt on your Maui home will be gone.  

Wealth Building Through Home Ownership

You may sell your home every 2 years and take your profits free from federal tax if you follow the Two Year Ownership and Use Rule: To qualify for the $250,000 (if single) OR $500,000 (if married) home sale exclusion, you must own and occupy the home as your principal residence, for at least two years, before you sell it. Your home can be a condo or house.  

If you meet all the requirements for the exclusion, you can take the $250,000/$500,000 exclusion any number of times. But, you may not use it more than once every two years. By wisely using the exclusion, you can possibly move-up over the years and avoid any income taxes on your profits. Reinvest these tax free profits every two years into a primary residence and soon with this strategy alone, you will be mortgage free in much less than 30 years. 

Feel free to use these creative strategies, if you can, and save yourself a substantial amount of money.

Image Credit: Michelle Del Rosario

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Michelle Del Rosario, REALTOR®, CLHMS, CRS, GRI, SFR of Keller Williams Realty Maui has sold real estate for 29 years. Michelle can be reached directly at: 808.280.8898 / m.delrosario@kw.com

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