So, you’re eager to pay off your mortgage early? That’s a great financial goal to set for yourself!
Not only is there huge freedom in being completely debt-free and living in a paid-for house, but it’s also a great way to build wealth—getting rid of your house payment leaves you with a ton of extra money each month to save for retirement. In fact, the average millionaire pays off their house in just 10.2 years.1
But even though you’re dead set on ditching your mortgage ahead of schedule, you probably have one major question on your mind: How do I pay off my mortgage faster? That’s why we’re going to walk through exactly how to pay off your mortgage early so you can reach your goal and become a debt-free homeowner.
Paying off your mortgage early can feel like an impossible feat when you’re looking at a 30-year term. But with some strategic planning and discipline, you can significantly slash the remaining time on your home loan. Here are some of the most effective ways to pay off your mortgage ahead of schedule.
Make Extra Payments
One of the simplest ways to pay off your mortgage faster is by making extra payments when you can. This additional money goes straight to reducing your outstanding principal, cutting down the amount of interest you pay over the life of the loan.
You have a couple options for how to make extra payments
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Round up your monthly payment to the nearest $100. For example, if your regular payment is $1,543, send $1,600 each month instead.
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Add a set amount like $100 or $200 to your regular monthly payment Automate this if possible so you don’t forget
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Make an extra mortgage payment 1-2 times per year. Use your tax refund or a holiday bonus to make these lump sum payments.
Depending on the size of your mortgage, every $100 extra per month could shave over a year off your loan term and save thousands in interest charges.
Refinance to a Shorter Term
One of the most effective ways to slash your remaining mortgage term is to refinance into a shorter loan length. The most common terms are 30 and 15 years. By refinancing from a 30 into a 15, you could pay off your mortgage twice as fast.
Here’s an example:
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30-year fixed mortgage for $250,000 at a 3.5% interest rate:
- Monthly payment = $1,054
- Total interest paid = $129,443
- Payoff time = 30 years
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15-year fixed mortgage for $250,000 at a 2.25% interest rate:
- Monthly payment = $1,638
- Total interest paid = $44,788
- Payoff time = 15 years
As you can see, the 15-year mortgage saves over $84,000 in interest charges and cuts the payoff time in half. Just keep in mind that your monthly payment will increase when you refinance to a shorter term. Make sure it fits within your budget.
Pay Biweekly Instead of Monthly
Here’s an easy way to make an extra mortgage payment each year without really trying. Instead of paying once per month, split your payment in half and pay every two weeks.
Over 12 months, that equates to 26 half-payments, or 13 full monthly payments. By paying this extra amount annually, you could shave several years off a 30-year mortgage.
Not all lenders accept biweekly payments, so check with yours first. There’s usually no fee for setting up this type of automated payment schedule.
Recast Your Mortgage
If you receive a financial windfall like an inheritance or bonus, consider using it to recast your mortgage. This involves making a lump sum payment of at least $5,000 to $10,000 toward your mortgage principal balance.
Your lender will then reamortize your loan to a lower monthly payment based on the reduced balance, while keeping the original term length. To pay off your mortgage faster, continue making the higher payments you were before the recast. The extra amount applied to principal will help accelerate your payoff.
Recasting a mortgage typically costs around $250 – $500 in fees. Not all loan types can be recast, so check eligibility requirements.
Make Extra Principal Payments
Instead of one big lump-sum each year, consider adding an extra $50 – $200 toward your mortgage principal each month. Contact your lender to be sure any extra payments go to reducing your principal balance, not future interest due.
While this monthly amount may seem small, it can have a big impact over the life of your loan. For example, adding just an extra $100 per month could pay off a 30-year $250,000 mortgage 3-5 years faster and save over $15,000 in interest.
Strategically Use a HELOC
If you have a lot of equity built up in your home, using a HELOC (home equity line of credit) can be a strategic move to pay off your mortgage faster. Here’s how it works:
- Open a HELOC secured by your home equity
- Use funds from the HELOC to make a lump-sum payment toward your mortgage principal
- Continue making your regular mortgage payments, except now more is going to principal since your balance is lower
- Make payments toward the HELOC balance to pay it off quickly
Since HELOCs tend to have lower interest rates, this can ultimately save you money compared to just making extra mortgage payments. Just be sure you have the discipline to pay off the HELOC.
Make Sacrifices To Free Up More Cash
To pay off your mortgage faster, you’ll likely have to find places to trim your budget. Here are some ideas that could painlessly free up a couple hundred dollars each month for extra mortgage payments:
- Pause retirement account contributions – Just temporarily while you focus on your mortgage payoff goal.
- Rent out a room – This can bring in $500+ per month if you charge market rates.
- Sell unused items – Clear out clutter and unused furniture, electronics, etc. for extra cash.
- Work overtime – See if you can pick up some overtime hours for more income.
- Pause subscriptions – Cut back on streaming services, gym memberships, etc. that you rarely use.
Should You Pay Off Your Mortgage Early?
Paying off your home loan faster than required may be a great move financially, but also consider:
Pros
- Save money on interest payments
- Equity grows faster
- Frees up cash flow later on
- Peace of mind in retirement
Cons
- Loss of tax deductions
- Less savings for other goals
- Reduced credit mix
Look at the big picture and make sure accelerated mortgage payoff aligns with your overall financial plan. And check for prepayment penalties on your specific loan, which could impact payoff costs.
Final Thoughts
Paying off your home faster means you’ll save money on interest and can enjoy being mortgage-free sooner. Using a combination of strategies like making extra payments, refinancing, and recasting can help you reach your early mortgage payoff goals.
Make extra room in your budget.
You may have read that last section and thought, But I don’t have any extra money to put toward my house payments! Hang on—you can probably find more money in your budget each month than you realize.
Now, if you aren’t already making a budget every month, start there. Write down your income, list your expenses, subtract your expenses from your income to make sure you aren’t overspending, then track your spending during the month to make sure you’re staying on target.
If you are living on a budget—or once you make your first one—here are some adjustments you can make to free up money for paying off your house early.
- Lower your grocery budget. Chances are, groceries are one of the biggest line items on your budget aside from housing—especially if you have a family. So think about some ways to cut back, like changing stores or shopping sales and in-season produce.
- Stop eating out so much. Okay, I’ll admit this is a tough one for me because I love eating out. But going to restaurants is always more expensive than cooking at home—sometimes a lot more expensive. Cooking at home just 2–3 more times per week can save you a ton in the long run.
- Do an insurance coverage checkup. An independent insurance agent who can shop rates from multiple providers may be able to get you a cheaper price than what you’re currently paying for your coverage. You can start that process by connecting with a RamseyTrusted pro.
- Cancel some subscriptions. These days, it’s super easy to rack up more subscription services than you actually use. Figure out which streaming services you can live without, cancel them, and put the extra cash toward your mortgage.
- Cut back on online shopping. I know, I know . . . Online retailers like Amazon are super convenient with two-day shipping and one-click ordering, but all those orders can add up fast. And if we’re really honest with ourselves, we probably know we don’t need all that stuff in our digital cart. (Dang it!) Cutting back will give you margin to make bigger payments on your mortgage each month.
How to Pay Off Your Mortgage Faster: 5 Tips
Now, let’s take a beat and look at some other financial goals you need to prioritize ahead of getting rid of your mortgage. Before you start paying off your house faster, there are four things I want you to do:
- Pay off all your consumer debt (think credit cards, car notes and student loans).
- Build an emergency fund worth 3–6 months of your typical expenses.
- Begin investing 15% of your income for retirement.
- Start putting money aside for your kids’ college (if you have kids).
If you haven’t checked all four of those boxes, then that’s where you should focus your attention for now. But if you have accomplished those goals, you’re ready to start taking steps toward paying off your house early. Exciting!
Let’s go over five not-so-secret but super helpful tips for making that happen.
Do This To Pay Off Your Mortgage Faster & Pay Less Interest
FAQ
How can I pay off my 30 year mortgage in 10 years?
- Increase your monthly payment. This one is straightforward—just commit to pay extra every month. …
- Make extra payments. …
- Refinance to a shorter term. …
- Downsize your home. …
- Invest towards your mortgage payoff.
What happens if I pay 3 extra mortgage payments a year?
What is the smartest way to pay off a mortgage?
Strategies include making extra principal payments and applying windfalls like bonuses or tax refunds. Refinancing to a lower interest rate or shorter loan term may help you pay off the mortgage faster, though it’s important to weigh fees and long-term benefits.
What is the 2% rule for mortgage payoff?
How do I pay off my mortgage faster?
Pay fortnightly or weekly Instead of making monthly repayments, switch to fortnightly or weekly repayments. This will result in you paying off your loan faster because there are 52 weeks in a year, but only 12 months. By paying fortnightly, you’ll make 26 repayments a year, which is the equivalent of 13 monthly repayments.
Should you pay off your mortgage early?
Refinancing may help you get better terms on your current mortgage, reducing interest and making monthly payments more manageable. While paying off your mortgage early can be appealing, it shouldn’t be at the expense of your savings account.
Can you pay off a mortgage faster without refinancing?
By paying off the loan faster, you’ll eliminate years of interest payments. While you could pay off your loan sooner without refinancing by simply making extra (or larger) payments, you may be missing out on a lower interest rate. Bear in mind, however, that refinancing comes with closing costs just like the initial mortgage.