How to Pay Off a Mortgage Early

How to Pay Off a Mortgage Early

We know the financial burden a mortgage can be on your bank. Thats why we are passing along these tips on how to pay off a mortgage early, thanks to .

Pay the Mortgage Early Without Increasing Your Monthly Payment

  • If your current interest rate is much higher than today’s mortgage rates
  • You may be able to refinance to that lower rate for free or little cost
  • Then continue to make your old, higher monthly payment
  • And save thousands while paying off your home loan much earlier!

With mortgage rates still quite low historically, it might be possible for homeowners to refinance and make the same monthly payment while paying down their mortgages in a much shorter period of time.

How This Early Mortgage Payoff Strategy Works

Let’s pretend you’ve got a loan amount of $300,000 on a 30-year fixed mortgage set at 6.25%.

Your current monthly principal and interest payment is $1,847.15. If today’s mortgage rates are a much lower 4.75% for the same loan, you could take advantage of this trick.

The new monthly payment would be $1,564.94, but it you continued to make your old payment each month, you’d chip away at the mortgage a lot faster.

Loan amount: $300,000
Loan program: 30-year fixed
Current mortgage rate: 6.25%
Current mortgage payment: $1847.15 <===== keep making this payment
Refinance mortgage rate: 4.75%
New mortgage payment: $1564.94

If you were able to refinance your mortgage as described above, your new monthly mortgage payment would be roughly $282 cheaper per month, assuming you stayed with the same loan program.

While such a move clearly provides monthly payment relief, it could also shorten the term of your mortgage tremendously if you made your old mortgage payment on the newly refinanced mortgage.

This is one trick to pay off your mortgage very quickly without breaking the bank.

If you simply made the old monthly payment of $1847.15, the $282 or so a month in overpayment would go toward the outstanding principal balance, shortening the amortization period from 30 years to about 22 years.

Yes, you read that right. In our example, you could shave eight years off your mortgage simply by making the payment you’ve always been making. But wait, it gets even better.

You’d Pay a Lot Less Interest Too!

  • Paying the mortgage early to own your home sooner is one benefit
  • But you’ll also save a ton on interest when you shorten the term of your home loan
  • Because a quicker payoff means you don’t have to pay the full amount of interest due
  • So it’s actually a double win for very little effort

By paying extra, the total amount of interest paid over the life of the home loan would also decrease from over $263,000 to less than $182,000.

That’s a total savings of nearly $82,000, not factoring in tax deductions and the interest you paid on the original loan.

Not bad for continuing to make the same monthly mortgage outlay you were making before, right? Where else are you going to save nearly $100k?

If you wanted to get even more aggressive, you could also refinance into a shorter-term fixed mortgage, such as a 15-year fixed.

The 15-year fixed mortgage payment in our example from above would be $2,219.06 (assuming a new refinance rate of 4%), which is a more significant jump that not all homeowners would be comfortable with, let alone qualify for.

But if there’s a wider spread on your existing mortgage rate and the current rate you qualify for, it could make a lot of sense to shorten the term with little or no monthly payment pressure.

Of course, you’d have no choice but to make those higher payments each month. So it’s a bit more of a commitment.

Finally, you could leave your mortgage intact and just make larger monthly payments (toward principal), or look into biweekly mortgage payments.

Just keep in mind that if you make larger payments each month on your original mortgage, it WILL NOT lower your payment due the next month.

The way mortgages are paid off, extra payments simply reduce your interest expense and shorten your loan term, they do not affect the amount of future monthly payments.

In other words, if you paid an extra $100 each month, you would still owe the same amount the following month, despite having a smaller outstanding balance.

Tip: Making extra payments earlier in the loan term will amount to greater savings, so if you plan to pay your mortgage off early, do it sooner rather than later! A payoff calculator will demonstrate this.

30+ Mortgage Payoff Tricks You Can Utilize Right Now

  • Make extra payments to principal
  • Pay an extra payment each quarter, semi-annually, or annually
  • Make biweekly mortgage payments
  • Round up your mortgage payments
  • Increase extra payments as salary rises
  • Apply your tax refund (or any other windfall) to your principal balance
  • Refinance your mortgage to a lower rate and make the old higher payment
  • Switch to a shorter-term mortgage such as a 15-year or 10-year fixed loan
  • Refinance out of FHA to drop mortgage insurance
  • If you have bad credit, improve your credit score then refinance to a lower rate
  • Don’t reset the clock when refinancing
  • Consolidate two loans to a lower blended interest rate
  • Go with an ARM that has a lower interest rate but beware of resets
  • Start with a lower rate by buying it down and pay closing costs out-of-pocket
  • Put more money down to avoid PMI and get a lower rate
  • Sell another property and use the proceeds to pay off a different mortgage
  • Sell stock or other investments and use the proceeds to pay down the mortgage
  • Find a roommate and use their rent to pay down the mortgage early
  • Rent out a garage and use the funds to pay off the mortgage
  • Put your property on Airbnb
  • Cash in your credit card rewards/points and apply them to your mortgage balance
  • Apply a bank sign-up bonus ($500 in some cases) to your mortgage balance
  • Pay your mortgage with a credit card and put cash back amount toward principal
  • Use some form of interest rate arbitrage, like a 0% APR balance transfer credit card, to pay a chunk of the mortgage now
  • Put loose change in a collection jar and periodically deposit it and use it to pay down the mortgage
  • Get a side job (hello real estate agent!) and use the earnings to pay down the mortgage faster
  • Host a garage sale and apply proceeds to the mortgage balance
  • Ask for a no-interest loan from a family member and apply it to the mortgage balance
  • Ditch your car if you can get by without one, use extra cash on hand to pay off your mortgage early (I’ve done this)
  • Be a cord-cutter and stop paying for cable, then put the difference toward the mortgage each month (I do this)
  • Know which mortgage to pay first to save the most money!

We hope these tips help you pay your mortgage off early or help you decide to finally get that loan for a home that’s caught your eye!

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