How To Pay Off Your Mortgage Early

So you’re eager to join the nearly 40% of American homeowners who actually own their home outright. Can you imagine that? Are you interested in learning How To Pay Off Your Mortgage Early?

Have you ever dreamt of what life would be like without a mortgage? What would you do without your monthly mortgage payment?

Now that I’ve got you thinking, you are probably wondering how you can make this possible.

Key Takeaways

If you want to pay off your mortgage in a shorter period of time, you should make greater payments more frequently.
Any extra money should be put toward your mortgage payments.
Although it is possible, paying off your mortgage in 5 years may not always be the best decision if you have other financial priorities.

The idea of Paying Off Your Mortgage In Full Early can be pretty daunting. After all, we’re talking about hundreds of thousands of dollars of debt.

Can You Pay Off a Mortgage Early?

Because mortgages tend to be large loans that last for a couple of decades or longer, paying off the loan early can save you tens of thousands of dollars in interest.

Not to mention, it feels good not having a monthly mortgage payment to worry about.

When you send in your monthly check to your mortgage lender, the payment is split between principal and interest.

Early on in the loan, a large portion of that payment is applied to interest. As time goes on, more of the payment goes toward paying down the principal.

This is known as amortization, and it allows the lender to make back a larger portion of their money within the first several years of repayment.

The key to paying off your mortgage early is by applying extra payments to the principal.

Should You Pay Off Your Mortgage Early?

You have a 30-year mortgage, but you are not trying to pay it off early. Why not?

Because the interest rate on your mortgage is 3.25%, and you can get a better financial payoff by putting all your extra money into investments instead.

If you’re in a similar situation, by all means direct your extra cash into retirement accounts or other investments and let the mortgage run out on its own.

You may also have other long-term financial goals, such as paying off Credit Card Debt or financing an emergency fund or savings account.

These financial issues should definitely have a higher priority than paying down your mortgage. Once you’ve dealt with them, especially paying off debt, you can go back to getting rid of your house payment.

And, unlike other forms of debt, if you itemize deductions you can deduct the interest you pay on your mortgage from your income taxes — so you’ll get at least part of your money back from the federal government.

That’s not enough of a reason by itself to make stretching out your mortgage fiscally wise, but combined with other factors it can be a nice extra benefit to help you reach your financial goals.

3 Key Questions to Ask

Before you decide to Pay Off Your Mortgage Early, ask yourself these questions:

Do I have little-to-no high-interest debt, including credit cards?
Am I on track to save enough for retirement and other major financial goals?
Do I have an adequate emergency fund of at least six months’ worth of expenses?

If you can answer yes to all three, paying your mortgage off early may be a good financial move.

Just keep in mind that some lenders charge a prepayment penalty; if yours does, be sure to factor in that cost, too.

How To Pay Off Your Mortgage Early

Before I go over how to pay off your mortgage early, I want to talk about some of the common questions that you may have.

a) What happens if you make 1 extra mortgage payment a year?

Not everyone who wants to learn how to pay off your mortgage early is interested in doing it ASAP. And, there are others who don’t have the funds to do it in 5-10 years.

However, making just one extra mortgage payment a year can still help you save you money and time on your total mortgage.

If you have a $200,000 mortgage, for example, your monthly payment will be around $1,000. Making one extra payment of $1,000 a year will shorten your mortgage by just over 2 years and save you over $11,000.

b) How fast can I pay off my mortgage?

You can pay off your mortgage as fast as you want if your bank allows it.

Some people decide to pay off their mortgage in just a few years, whereas others may keep their mortgage for the full 30 years.

You may want to think about the pros and cons of paying off your mortgage to see what timeframe is best for you.

You can learn how to pay off your mortgage in 5 years, 10 years, 20 years and so on with the tips I’m about to share with you.

c) Will I have to pay a penalty to pay off my mortgage early?

One thing that you will want to check is if your bank charges a fee to pay off your loan early. This is less common nowadays, but it’s easy to figure out and can save you from penalties.

But, don’t let this scare you. Just simply ask!

d) Why does it take 30 years to pay off a $150,000 loan even though you pay $1,000 a month?

I’ve received a few variations of this question, so I wanted to include this here.

If you do the math, $1,000 a month over 30 years would be $360,000. This is much more than $150,000.

Why the discrepancy? It’s because you are paying a lot of money in interest, as well as other possible expenses such as property taxes and insurance.

By paying off your mortgage early, you can save thousands of dollars in interest expenses.

You will still have to pay property taxes and insurance, but think about how much you would save each month on mortgage payments.

e) How do I make an extra payment on my mortgage?

When paying any extra on your mortgage, make sure to tell your mortgage lender that you want the extra funds to go towards your mortgage’s principal balance.

Paying down the principal balance is how you save time and money on your payoff.

This is a really important question to ask. If you want to learn how to Pay Off Your Mortgage Early. Why? Because many banks will automatically put it towards your next month’s payment instead of the principal.

That won’t help you save on interest expenses.

f) What happens if I pay an extra $200 a month on my mortgage?

It really depends on your interest rate, loan term, and principal balance. For example:

If you are 1 year into a 30-year $300,000 mortgage with an interest rate of 3%, an extra $200 a month will save you $31,000 and shorten your pay off by 5.8 years.
If you are 5 years into a 30-year $150,000 mortgage with an interest of 5%, an extra $200 a month will save you $36,000 and shorten your pay off by 8 years.

You can find a mortgage payoff calculator online to see exactly what will happen to your mortgage with an extra $200 payment each month.

g) Is there a downside to paying off a mortgage early?

While there are many positives of learning how to pay off your mortgage early, it is not something that everyone wants to do.

There are many people out there who prefer to keep their mortgage, even if they could afford to pay it off in full.

Paying off your mortgage on a normal schedule (not early) can have advantages like:

You can invest your extra cash elsewhere and earn a higher rate since today’s mortgage interest rates are so low.
If you have a fixed rate loan, then a $1,000 payment today will still be a $1,000 payment 30 years from now. But because of inflation, in 30 years, $1,000 will be nowhere near the amount that it is worth today.
By paying off your mortgage early, you may be tying up a lot of money in real estate, and some people want a more balanced approach.

And, prioritizing a fast mortgage payoff might not be the best option if you have high-interest rate loans (such as credit card debt), if you are not saving for retirement at all, have no emergency fund, and so on.

How to Pay Off Your Mortgage Early And Faster

Here are the Best Ways To Pay Off Your Mortgage Early and Faster, with the numbers to prove it.

Okay, you probably already know that every dollar you add to your mortgage payment puts a bigger dent in your principal balance.

And that means if you add just one extra payment per year, you’ll knock years off the term of your mortgage—not to mention interest savings!

To get serious about paying off your mortgage faster, here are some ideas to help:

What is the Fastest Way To Pay Off a Mortgage?

If you want to learn How To Pay Off Your Mortgage Early, there are many ways to do it. You can try one or many of the tips below.

1. Pay Biweekly

One way to pay off your mortgage early that doesn’t require coming up with any extra payments is to split your monthly payment into two smaller payments and paying biweekly.

Here’s how it works: Most mortgages require a monthly payment, or 12 payments per year. If you switch to bimonthly payments, you end up making 26 payments per year—in effect, one extra payment.

This not only quickens the pace of your loan payoff, but also saves you money on interest over the life of the loan.

Wondering how effective this strategy really is? Consider this: On a $250,000 30-year fixed-rate mortgage at 3.5%, you’ll pay off your mortgage four years early and save more than $20,000 in interest.

Not all lenders allow biweekly payments, though many do. If you want to switch to this payment method, contact your lender and double-check that they don’t charge a fee to do so.

2. Make Extra House Payments

Let’s say you have a $220,000, 30-year mortgage with a 4% interest rate. Our mortgage payoff calculator can show you how making an extra house payment ($1,050) every quarter will get your mortgage paid off 11 years early, and save you more than $65,000 in interest—cha-ching!

Use the mortgage payoff calculator and see how fast you can pay off your home!

But before you start making extra payments, let’s go over some ground rules:

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

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

Don’t shell out your hard-earned cash for a fancy-schmancy mortgage accelerator program. You can accomplish the same goal all by yourself.

**a) What Does Paying Your Mortgage Biweekly Do?**

Some mortgage lenders allow you to sign up for biweekly mortgage payments. This means you can make half of your mortgage payment every two weeks.

That results in 26 half-payments, which equals 13 full monthly payments each year. Based on our example above, that extra payment can knock four years off the 30-year mortgage and save you over $25,000 in interest.

b) Are Biweekly Mortgage Payments a Good Idea?

A biweekly payment plan can be a good idea—but never pay extra fees to sign up for one. Remember, there’s nothing magical about them.

The real reason it helps pay off your mortgage faster is because your extra payments add up to 13 monthly payments per year instead of the standard 12.

So if your lender only lets you pay biweekly by charging you a fee, don’t sign up.

3. Recast Your Mortgage

You’re probably familiar with refinancing, but you may not have heard about Mortgage Recasting.

When recasting, you make one large lump-sum payment toward your principal balance. Usually, at least $5,000 is required to recast.

The lender then reamortizes the loan to reflect the new balance.

Recasting a loan accomplishes a few things. For one, your monthly payment will decline. You’ll also save money on interest over the life of the loan.

And if you apply those savings toward larger monthly payments, you’ll also pay off the mortgage early.

There is usually a fee required to recast a loan, though it’s typically just a few hundred dollars.

Also keep in mind that not all loan types can be recast, including Federal Housing Administration (FHA) and U.S. Department of Veterans Affairs (VA) mortgages.

4. Make Mortgage Payments More Frequently

Instead of making one monthly payment toward your mortgage loan, you can make a half-sized payment every two weeks resulting in extra payments during the year.

In other words, if your usual mortgage payment is $1000 a month, you would instead pay $500 every other week.

These extra payments will have nearly the same impact on your budget as paying one monthly payment, but because there are 52 weeks in a year, a biweekly payment schedule will result in 13 full-sized payments a year instead of the normal 12.

You’ll be making an entire extra payment every year without having to scrounge around for the extra money.

To look at some real-life numbers, if you have a 30-year $200,000 mortgage at an interest rate of 5%, making biweekly instead of monthly payments would save you $34,328 in interest.

Save you from extra mortgage payments, and allow you to pay off the mortgage balance almost five years early.

5. Refinance Your Mortgage Into a Shorter-Term Loan

Got a 30-year mortgage?

Refinancing it as a 15-year loan will blast you through that mortgage a whole lot faster. Will probably get you a better interest rate as well. Shorter loan terms are typically paired with lower interest rates.

And thanks to the shorter time frame, you’ll pay a lot less money in interest. So the payments on a 15-year loan are not double the payments of a 30-year loan. They’re significantly less.

Pull up a Mortgage Payoff Calculator and play around with the numbers to see how much you’d have to pay to do a 15-year refinance.

And if the monthly mortgage payment for such a loan would be more money than you can afford, consider a 20-year loan instead.

It’s common for mortgage borrowers to opt for a longer repayment term in order to keep monthly payments low—typically 30 years.

However, as time goes on, your income may increase or lifestyle may change to free up more cash flow.

If that’s the case, you may be able to Refinance Your Loan to a shorter term.

Since the repayment period gets crunched into a shorter time period, the monthly payments will likely increase.

However, this is an effective way to pay off your mortgage much earlier and save a ton of money on interest, especially if you also qualify for a lower interest rate.

Take a look at this comparison between a $250,000 loan with a 30-year fixed-rate term versus a 15-year fixed-rate term:

	30-year fixed rate	15-year fixed-rate
Interest rate	3%	2.25%
Monthly payment	$1,054.01	$1,637.71
Total interest paid	$129,443.63	$44,788.15

30-year fixed rate

15-year fixed-rate

Interest rate

2.25%

Monthly payment

$1,054.01

$1,637.71

Total interest paid

$129,443.63

$44,788.15

As you can see, it’s possible to save $84,655 in interest and pay off your mortgage in half the time by refinancing from a 30-year to a 15-year term.

One thing to consider before refinancing, however, are Mortgage Closing Costs, which typically total 2% to 3% of the loan amount.

You’ll want to make sure that closing costs don’t negate the interest savings, otherwise it may not be worth it.

6. Schedule Extra Payments

Maybe you aren’t able to come up with the extra cash to make additional payments each month (or don’t want to).

That’s OK—a couple of well-timed extra payments throughout the year can be even more effective.

Perhaps you receive an annual bonus from work or tax return each April.

If you were to take $1,200 per year and apply it to that same mortgage example above, you’d cut your loan down by over three years and save over $25,000 in interest.

Now, if you do decide to make extra payments toward your mortgage, be sure to check with your lender that the extra funds will be credited toward the loan principal.

If you don’t specify how you want these payments applied, the lender will likely use them to prepay interest owed on your mortgage instead.

7. Allocate Extra Funds Towards Your Mortgage

Many taxpayers get a tax refund every year. If you use most, or all, of that money as an extra payment on your mortgage, you can make serious progress in getting your house paid off.

Other potential windfalls include a bonus from work, a successful garage sale, or a gift from a relative. And if you get a raise, consider putting all the extra income into your mortgage.

For example, let’s say your monthly take-home pay was $4,000 and your 3% raise means that you’re now getting $4,120 per month.

Put the extra $120 into your mortgage every month and you won’t even miss the money, since you’re not used to having it, and you’ll end up paying off down your mortgage faster than you think.

8. Make Extra Principal Payments

When you send in your monthly payment, most mortgage lenders will allow you to make an extra payment and mark it “principal only,”.

Meaning that this payment will go to paying down the principal rather than both the principal and interest on the loan.

Paying down even a little bit of extra principal early on in the loan can save you quite a lot in interest charges, not to mention getting you out of the loan several years ahead of schedule.

So consider sending just a little extra to the loan holder every month as an extra principal payment.

For example, if you have an odd payment amount such as $1046 per month, you can round it up to $1100 and dedicate the extra bit as a payment on the principal.

Even if it’s only paying an extra $50 or so a month, the principal payments will add up faster than you’d believe, speeding up the mortgage payoff process

9. Downsize

Downsizing your house could be a drastic step. But if you’re determined to crush your mortgage fast, consider selling your larger home and using the profits to buy a smaller, less expensive house.

With the profits from selling your bigger house, you may be able to completely pay cash for your new home.

But even if you have to get a small mortgage, you’ve still succeeded in reducing your debt. Now your goal is to get rid of that debt as quickly as possible.

The smaller the balance, the quicker you can make it happen.

a) Don’t Buy More House Than You Can Afford

Let’s say you go the downsizing route. Before shopping for your next home, first make sure all your ducks are in a row and know how much house you can actually afford.

This handy checklist is a great place to start. If you can’t say yes to all six questions, it’s best to put your home purchase on hold.

Am I debt-free with three to six months of expenses in an emergency fund?

Can I make at least a 10% (preferably a 20%) down payment?

Do I have enough cash to cover closing costs and moving expenses?

Is the house payment 25% or less of my monthly take-home pay?

Can I afford to take out a 15-year fixed-rate loan?

Can I afford ongoing maintenance and utilities for this home?

If you need help figuring out what your new monthly mortgage payments will look like, try our mortgage calculator.

b) Consult a Pro to Find the Right Home

For help finding houses that fit your budget, or if you’re ready to sell your home, consult an experienced real estate agent whose advice will save you time and money.

A buyer’s agent can help you navigate through the home-buying process. In some cases, they may even be able to help you find a house before it hits the market, giving you a competitive edge.

And when it comes to making an offer, your agent will negotiate on your behalf—so that you don’t pay a penny more than you have to.

You can find a trustworthy real estate agent in your area through our nationwide Endorsed Local Providers (ELP) network.

We only recommend agents who understand how important it is to you to buy a home you can afford. You can trust that your ELP agent won’t pressure you to consider homes that would bust your budget.

c) Maximize Your Down Payment

The best way to buy a home is with 100% down. Paying cash for a home may sound weird, but imagine all the fun you’d have without a mortgage payment weighing you down!

If you can’t postpone the purchase until you can pay cash, plan to put an absolute minimum of 10% of the home price down at the closing table.

Of course, 20% or more is even better because then you’ll avoid paying private mortgage insurance (PMI).

PMI typically costs 0.5–1% of the loan amount annually. For example, on a $250,000 mortgage, PMI will cost you $1,250–2,500 a year. Why give the bank extra money each month if it doesn’t pay your mortgage down faster?

Keep in mind that the more cash you put down on the front end, the less money you’ll need to finance. That adds up to a lower mortgage payment each month, making it easier to pay off your mortgage early.

10. Create Room in Your Budget

One of the most effective ways to pay off your mortgage faster is to pay more than the monthly amount due. That might seem obvious, but you might not realize just how far a little extra money can go.

For example, say you took out a 30-year fixed-rate mortgage of $250,000 at 5% annual percentage rate (APR) and have 25 years left on the loan.

That would mean you owe $1,342.05 per month. Now imagine that you tack on just $20 extra to each payment.

You’d shorten the repayment period by eight months and save $5,722 in interest. Use a mortgage calculator to help you do the math.

For an extra $20 per month, you’d simply need to cut out one fancy coffee a week or a couple of takeout lunches. Obviously, putting even more money toward extra payments will result in even more savings.

Just keep in mind that you don’t want to go overboard here and sacrifice other financial goals to pay down your mortgage faster.

Mortgages are some of the cheapest loans out there, so be sure you’re paying off other higher-interest debt and investing before you start cutting back in other areas of your budget.

11. Refinance—Or Pretend You Did

Another way to pay off your mortgage early is to trade it in for a better loan with a shorter term—like a 15-year fixed-rate mortgage.

Let’s see how this would impact our earlier example. If you keep the 30-year mortgage, you’ll pay more than $158,000 in total interest over the life of the loan.

But if you switch to a 15-year mortgage, you’ll save over $85,000—and you’ll pay off your home in half the time!

Sure, a 15-year mortgage will probably come with a bigger monthly payment. But if it fits within your housing budget, it’ll totally be worth it!

And hey, maybe you’ve boosted your income or lowered your cost of living since when you first took out your mortgage—then you’d definitely be able to handle the bigger payment.

You can refinance a longer-term mortgage into a 15-year loan.

Or if you already have a low interest rate, save on the closing costs of a refinance and simply pay on your 30-year mortgage like it’s a 15-year mortgage.

What if you already have a 15-year mortgage? If you can swing it, imagine increasing your payments to pay it off in 10 years!

12. Bring Your Lunch Into Work

Sure, bringing an egg salad sandwich to work every day isn’t as fun as going to a restaurant with your coworkers.

But trading lunch out for eating in can make you a lean, mean, mortgage-free machine.

Suppose packing your lunch frees up $100 to use toward your mortgage every month. Based on our example above of the $220,000 loan, that $100 in lunch money will help you pay off your mortgage four years ahead of schedule and save you nearly $27,000 in interest!

Can’t quite spare a whole $100 from your food budget? No worries. Even small sacrifices can go a long way to help pay off your mortgage early.

Put Andrew Jackson to work for you by adding just $20 to your mortgage payment each month. Based on our example, you’ll pay your mortgage off a year early, saving over $6,000 in the process.

What Happens When You Pay Off Your Mortgage?

Let’s imagine that you did pay off your mortgage early (a hypothetical congratulations to you!). What are the final steps for officially ridding yourself of the loan?

You’ll receive several mortgage release documents that show your loan is paid off and the bank doesn’t have a lien on your house.

That will likely include a statement that shows your mortgage is paid in full, as well as a canceled promissory note.

It’s also common for the lender to notify the city or county recorder that you are the official, outright owner of the property.

In some cases, however, you may have to take care of this yourself. If there are any funds left in your escrow account, your lender will send that money back to you, and you’ll be on your own when it comes to handling property tax and homeowners insurance payments going forward.

Should I Pay Off My Mortgage?

Just because you can pay off your mortgage early doesn’t necessarily mean that you should. Of course, it would feel great to rid yourself of a huge financial burden like a mortgage.

But if you really want to know if it’s a good decision, you have to look at the math.

There are pros and cons to paying off your mortgage early. Whether the pros outweigh the cons will depend on your overall financial situation.

Pros

Save money on interest: By reducing the length of time you spend making mortgage payments, you also cut down the amount of interest you pay over the life of the loan. Depending on the loan amount, interest rate and original term, paying the mortgage early can result in significant savings.
Free up money for later in life: The typical mortgage lasts 15 to 30 years. That’s a long time to be saddled with loan payments. By paying off your mortgage early, you free up cash to spend on more exciting things when you’re a bit older, such as travel.

Cons

Losing out on paying higher-interest debt: If you have credit card or student loan debt, funneling your extra cash toward paying off your mortgage early can actually cost you in the long run. That’s because these other types of debt likely have higher interest rates. You also should have an adequate emergency fund so that you can cover unexpected costs; otherwise you may be forced to accumulate high-interest debt.
Missing out on higher returns from investing: If you have the opportunity to invest your money for returns that are significantly higher than your mortgage rate, you’d be better served doing that than missing out on compounding earnings to get rid of your mortgage faster. For example, if your mortgage rate is 3.5% and your portfolio earns an average of 6% per year, you’d lose money by using extra funds to pay off the loan early.