How to Pay Off Your Mortgage Early (2024)

FAQs

How to Pay Off Your Mortgage Early? ›

Options to pay off your mortgage faster include:

Pay extra each month. Bi-weekly payments instead of monthly payments. Making one additional monthly payment each year. Refinance with a shorter-term mortgage.

Options to pay off your mortgage faster include:

Pay extra each month. Bi-weekly payments instead of monthly payments. Making one additional monthly payment each year. Refinance with a shorter-term mortgage.

When you pay extra on your principal balance, you reduce the amount of your loan and save money on interest. Keep in mind that you may pay for other costs in your monthly payment, such as homeowners' insurance, property taxes, and private mortgage insurance (PMI).

You might want to pay off your mortgage early if …

You want to save on interest payments: Depending on a home loan's size, interest rate, and term, the interest can cost hundreds of thousands of dollars over the long haul. Paying off your mortgage early frees up that future money for other uses.

Paying a little extra towards your mortgage can go a long way. Making your normal monthly payments will pay down, or amortize, your loan. However, if it fits within your budget, paying extra toward your principal can be a great way to lessen the time it takes to repay your loans and the amount of interest you'll pay.

Making additional principal payments will shorten the length of your mortgage term and allow you to build equity faster. Because your balance is being paid down faster, you'll have fewer total payments to make, in-turn leading to more savings.

Paying off your mortgage is something to celebrate. But it can impact your credit since you're no longer managing significant debt and your “mix” isn't as varied.

The same is true when it comes to paying down your mortgage. To O'Leary, debt is the enemy of any financial plan — even the so-called “good debt” of a mortgage. According to him, your best chance for long-term financial success lies in getting out from under your mortgage by age 45.

What happens if I pay an extra $500 a month on my 30-year mortgage? ›

Making extra payments of $500/month could save you $60,798 in interest over the life of the loan. You could own your house 13 years sooner than under your current payment. These calculations are tools for learning more about the mortgage process and are for educational/estimation purposes only.

Ideally, you want your extra payments to go towards the principal amount. However, many lenders will apply the extra payments to any interest accrued since your last payment and then apply anything left over to the principal amount. Other times, lenders may apply extra funds to next month's payment.

But if you have a relatively recent loan, you're likely looking at tens of thousands of dollars in savings and cutting as much as eight years off the life of your loan. Obviously, not everyone can afford to make two extra mortgage payments a year. You're basically increasing your housing costs by 16%.

Should I pay off my mortgage early? There are both pros and cons to paying your mortgage off early. While you save on interest and have extra funds to use elsewhere, you will lose the federal mortgage interest tax deduction and could miss out on more lucrative investments.

For example, if you pay off the mortgage within the first year, then you owe 2% of the outstanding balance; the penalty fee drops to 1% of the balance if you pay off the loan within the first two years.

In fact, according to Census Bureau data, nearly 40% of Americans already have. But are you really better off paying off your home mortgage, or are there strategies you can employ to put yourself ahead even more? Read on to learn more.

Some people get a 30-year mortgage, thinking they'll pay it off in 15 years. If you did that, your 30-year mortgage would be cheaper because you'd save yourself 15 years of interest payments. But doing that is really no different than choosing a 15-year mortgage in the first place.

The table shows that paying an additional $300 each month will shorten the life of the mortgage from 30 years to about 21 years and 10 months (262 months vs. 360).

Increasing your monthly payments, making bi-weekly payments, and making extra principal payments can help accelerate mortgage payoff. Cutting expenses, increasing income, and using windfalls to make lump sum payments can help pay off the mortgage faster.

You also wouldn't need to worry about remortgaging within the next couple of years or paying any of the fees that come with it. A 10-year fixed-rate mortgage can provide security for you through times of financial instability too.