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6 Simple Ways to Pay Off Your Mortgage Early

For most people it’s hard enough to make the regular payments for the mortgage, but if you can come up with something different you’re definitely going to save a great deal of money. Here are 6 ways to pay off your mortgage early:

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When it comes to a home mortgage most people get one for somewhere around 25 to 30 years. Of course, there’s always the option to get something longer or even something shorter. After all, a 30-year mortgage means that you’ll be paying off your house for about a third of your lifetime and that’s definitely going to be a long time.

What you should know, however, is that your house actually can be paid off early. Usually, there’s no prepayment penalty (though you’ll have to look at your mortgage agreement) and that means you can pay it off whenever you have the money. For most people it’s hard enough to make the regular payments for the mortgage, let anyone paying extra, but if you can come up with something different (like we’ll talk about here) you’re definitely going to save a great deal of money and you could end up increasing the amount of money in your household budget.

1. Refinance to a 15-Year Mortgage

If you currently have a 30-year mortgage on a $250,000 house with 5% interest you’re going to pay approximately $483,165 total on the life of that mortgage. But let’s say that you only pay that for the first 5 years. And then, you switch it over to a 15-year mortgage and you manage to get 4% interest. Just dropping that 1% for those next 15 years could save you a total of $96,935. And all you’re going to pay is an extra $300 a month. Plus, you’re going to have your mortgage paid in 20 years total rather than 30. That’s going to mean a whole lot of extra money in your pocket over the long run.

APR Monthly Payment Amount You'd Save in Interest Payment Time you cut
30 year (original mortgage) 5% $1,342
Pay 5 Years, then Refinance into 15-Year Mortgage 4% $1,698 $ 96,935 10 years
Pay 5 Years, then Refinance into 10-Year Mortgage 4% $2,324 $123,679 15 years
Pay 5 Years, then add 1/12 5% $1,453 $27,357 3 years, 5 months

What if you really want to make a difference and you want to pay off your loan even faster than that? Well then, you can shorten the term of your new refinance to 10 years.  If you still get that same 4% and you owe approximately $229,575 on the house at the end of the first 5 years where you had that 30-year mortgage you’re going to increase your payment by almost $1,000 a month. That’s going to be a whole lot of money, but it’s going to get your house paid off in only 15 years total. And that means you’ll have over $20,000 per year in your pocket a whole lot sooner than you would otherwise.

Now, not everyone can afford to make that kind of contribution and who could blame you? Instead, just make a single extra payment every single year and you’re going to end up saving a whole lot of money. You can even break it up over the 12 monthly payments you already make, so you pay 1/12 extra over the month. If your monthly payment is already $1,342 you’d pay $1,453, which doesn’t make a huge difference to your monthly budget. In a year though, that’s an extra payment and over the life of your 30 year mortgage you’re going to save over $27,357. Plus, you’re going to cut 3 years and 5 months off your timeline.

2. Increase Your Payments

The next thing to do is to increase your payment each month. You want to divide the amount of your monthly principal and your interest by 12 and then you’ll at that amount to your payment every month. It doesn’t add up to much on your monthly payment, but it’s going to give you a full extra payment every year.

If we take that same $250,000 mortgage on a 30-year loan and the 5% annual percentage rate we already mentioned your payments will be $1,342. If you pay this for 5 years and then jump to that extra 1/12 every month you’re going to pay $111 extra and you’re going to pay off the mortgage earlier. Plus, you’re going to save over $27,000 in interest charges and how great is that? Take a look at this with different loan terms.

Term Payment Interest Saving Interest
30 year $1,342 $232,588 /
20 year $1,649 $146,125 $86,463
15 year $1,976 $105,943 $126,645
10 year $2,651 $68,219 $164,369

Now, before you make any kind of changes to the payments you’re making it’s important that you talk to your lender about your options. You want to make sure that any additional money you’re paying in goes immediately to the loan rather than toward the next payment you’re supposed to make. Tell them you’re trying to pay down the loan more quickly and they should be able to help you figure out how to do that.

You want to make sure you’re always checking the mortgage statements you get to make sure that you’re getting all payments applied the right w ay so you can actually save money rather than just applying it to the next payment.

3. Add Money to the Principal

We all get unexpected money every so often throughout the year, right? You win on a lottery ticket, you get a bonus at work, a family member gives you money for your birthday and you use that money for other things that you don’t really need. If you’re interested in paying off your mortgage as quickly as possible, however, that money should be going toward your mortgage right away. You don’t have to worry about coming up with extra money when you do this, and you’ll be able to pay off your loan quicker too.

It’s important to note that even a small amount of extra money paid to the principal of your loan can save you a whole lot of money over the life of the loan. You could end up getting paid off within a shorter span of time too. Even if you can round up your current payment, like that $1,342 that can be rounded up to $1,300. That little bit extra every month is going to make a big difference over the life of your loan, especially if you keep it at 30 years.

4. Give Yourself Some Motivation

If you set a specific date that you expect to have your mortgage paid off by you’re going to have a goal to reach for and that’s definitely going to motivate you to work a little harder at it. Plus, you can figure out just how much you need to pay every month to make it happen.

You just need to take a calculator and do a bit of math. When we take that same house with the 30-year, $250,000 mortgage and the 5% APR you’re going to have payments of $1,342. Let’s say you took that out only 2 years ago but you want to pay it off entirely at the 15-year mark instead. If you divide out the total you’re going to need to pay an extra $635 each month. If you’re looking to pay it off in only 10 years you’ll need to add an extra $1,309 per month.

5. Pay Every Other Week

Right now you’re making a large payment on your mortgage every month, right? And you can’t afford to make two payments a month. Well, you won’t have to with this method. Instead, you’re going to cut your mortgage payment in half and pay half of the mortgage every two weeks.

So, if you normally pay $1,200 a month you would pay $600 every two weeks. This feels like you’re only making the same payments that you would normally, but with 52 weeks in a year you’re actually going to be making 13 monthly payments instead of just 12. That’s going to give you  a savings of nearly $43,000 over the life of your 30-year mortgage. That’s definitely a whole lot of money.

6. Double Up Options

If you’re interested in multiple options from this list then go for it. You could put a little extra money toward your mortgage every month and then add in the extra money that you get throughout the year. Or you could pay biweekly and increase your payments by a little bit at the same time.

There are a number of ways you can combine different options to make sure you’re getting that mortgage paid off a whole lot faster than you might have thought. And you’re going to see a whole lot of benefit in the long run because you’re going to have more money a whole lot sooner.

Should You Pay Your Mortgage Off Early?

It’s going to be entirely up to you if you really want to pay off your mortgage early. For some people it’s great because it frees up your money in the future, but it’s going to cost you more money in the present and that might not be as good of an idea for everyone.

Deciding on this is going to depend on things like your current income, your debt and your investments. But you’ll want to pay attention to each of these things before you make a decision.

The Benefits

  • Decrease Interest Costs – When you pay off your mortgage early you’re going to pay less in total interest. That’s definitely going to be a big amount of money (and if you’ve never looked at it you should).
  • Downsize Later in Life – If you decide to downsize your home later on in life you may want to use the money that you’ve paid off on your house to help you with the cost of the next house. It’s definitely going to make a big difference for you in the long run.
  • Free and Clear – You can feel more secure when you know that you own your house completely free and clear and that you don’t have to worry about paying anyone else ever again (or losing your house).

The Drawbacks

  • Liquidity –  If you pay off your house sooner you’re not going to have that money to do the other things that you want to do at the same time, like paying into your retirement or an emergency fund.
  • You’re Not Growing Your Money – Because you can’t put that money into an account where it will make money for you it’s actually going to reduce the amount of interest that you can earn. You’re not going to get the compound growth and more.
  • Loss of Tax Breaks – When you have a large mortgage payment and high interest you can use it as a tax break, but that goes away as you cut down on the interest you pay.