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The interest on your home mortgage is probably the largest expense you’ll ever pay in your lifetime, so it makes good financial sense to pay your mortgage off early and minimize it as much as you can.
For instance, the interest on a $200,000 30-year fixed mortgage at 6% is a whopping $229,528 over the life of the loan! Folks, there’s a reason America’s big banks occupy the tallest towers in our major cities. Taking even the smallest steps to pay off your mortgage early can put a lot of money back in your pocket that otherwise would have gone to the bank.
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If you’re asking “how can I pay my mortgage off early?”, the following are some great strategies to help get you started:
1) Make Biweekly Payments
Making biweekly payments is a popular way to pay off your mortgage early because it fits nicely within most people’s monthly pay schedule and pays an extra payment every year without significantly impacting your budget.
A biweekly payment plan can knock 5 to 6 years off a typical 30-year loan and save you thousands – or tens of thousands – of dollars in interest over the life of the loan. To see how a biweekly payment program might benefit you, check out the biweekly payment calculator at BankRate.com.
If you do opt to enter into a biweekly payment plan with your lender, make sure they don’t charge you for it. Most lenders offer it for free or for a minimal set up fee, but don’t pay anything more than that. If your lender doesn’t offer a biweekly plan or wants to charge you too much for it, you can achieve essentially the same result by adding 10% to your monthly payment.
2) Apply the Leftovers in Your Budget to Your Mortgage
Are you on a budget? If not, I recommend getting on one! A monthly budget is essentially a plan for your money that you set up ahead of time and it greatly helps you stay on track with your savings, investment, and mortgage payoff goals.
If you do have a budget for your monthly expenses, consider applying what’s left over at the end of the month toward your mortgage. For instance, if you allocate $600 to your monthly grocery budget but only spend $550, consider applying the extra $50 to your mortgage. You’ve already allocated the money for expenses, so it’s not money that you’ll miss. Over time these little payments here and there can add up to a lot and being motivated to pay down your mortgage will help you keep your spending below budget.
3) Round Up to The Nearest Even Number
Instead of just making your normal mortgage payment every month, consider rounding it up to the nearest even hundred or thousand (depending on how large it is) to help pay off your mortgage early. For instance, instead of paying $879 per month, pay $900 or $1000 per month. Unless your budget is super tight, you’ll probably find it pretty easy to live on the smaller amount of disposable income. Then, automate your payment and forget about it! By setting up an autodraft from your checking account, you can save yourself the hassle of writing a check every month as well as reinforce your early payoff plan.
4) Make Lump Sum Payments at Bonus or Tax Time
Many people choose to spend their bonuses or tax refunds on stuff, but I highly recommend investing it in your future by applying them to your mortgage to help pay it off early. Interest saved is money earned, and paying off your mortgage early instead of spending your tax returns or bonuses on iStuff and iGadgets can reap huge financial rewards in the future.
5) Snowball Other Payments Into Your Mortgage
If you’re in the process of eliminating other debts such as credit cards, auto loans, student loans, or credit lines, consider snowballing the savings into your mortgage. If you’re not familiar with the debt snowball idea, feel free to check out my post on Paying Off Debt With Dave Ramsey’s Debt Snowball.
6) Get a Side Hustle to Make Extra Income
Consider getting a side job or starting a side business to generate extra income that you can pay onto your mortgage to help pay if off early. Sure, you’ll be working hard now, but you’ll thank yourself later when you’re completely mortgage free.
7) Money Merge
Money merges are a great way to help pay off a mortgage early, but they’re not for everybody. If you’re not disciplined with your money to begin with, a money merge could just make the situation worse for you. The power of the money merge comes from interest arbitrage, or using lower interest debt to pay higher interest debt. If set up and used correctly, it’s extremely powerful. But if it’s not used correctly, it can just make your debt situation worse. I highly recommend doing thorough research before starting a money merge program.
8 ) Refinance for a Shorter Loan Term
With mortgage rates so low right now, it could be the best opportunity in years to pay off your mortgage early by refinancing for a lower rate and shorter loan term. However, when evaluating different loan offers, be sure to consider the costs of the refinance, how much interest you have remaining on your current loan, and how much interest will accrue on the new loan. To find out if a refinance could benefit you, be sure to consult a qualified mortgage professional.
Got Feedback?
Have some other strategies for paying off a mortgage faster? I’d love to hear about them! Feel free to leave your feedback in the comment section below.
Feel free to check out my post over at HubPages about Paying Off Your Mortgage Faster.
Paying more than 5%? Stop throwing money away! Click for a free rate quote.
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There are too many variables to consider therefore paying off mortgage will make sense for some people but not others. This debate is unless we consider the specific situation, for a 30 year old starting a family it may not be a good idea, but for a 50 year old it may. It depends on debt load, income, investments, etc. In my case I believe it makes sense but I cannot say the same for everyone….