Strategies For Paying Off Your Mortgage Faster

A mortgage loan often represents the biggest single source of debt you’ll ever incur in your lifetime. Considering that the average home price today is around $385,000, that likely means you’ve borrowed hundreds of thousands to finance your property.

That’s a lot of cabbage to be concerned about, especially when you consider how much total interest you will pay toward your lender over the life of your loan.

But you don’t have to stick to this script. If your loan allows it (and most mortgage loans do), you can make accelerated payments toward your principal, recast your loan, or refinance your mortgage, to get out from under your home loan more quickly.

Read on for more information and helpful tips on how you can pay off your mortgage earlier than expected and save some serious dollars.

Why it’s a smart idea to pay off your mortgage early

There are several benefits to paying off your mortgage loan more quickly than the agreed-upon term. Consider these advantages:

• You can pocket significant savings otherwise spent on interest (more on this later).
• The money you will save can be applied toward other financial goals or investments, resulting in greater financial flexibility.
• You may improve your credit score because you will lower your debt-to-income ratio.
• You can achieve full ownership and enjoy complete access to your home’s equity sooner.
• Worries about losing your home to foreclosure because of a job loss or other hardship disappear.

“The psychological benefit of owning your home outright can provide a substantial sense of security and stability, eliminating a major monthly expense and freeing up your budget for other financial objectives,” explains personal finance pro Shawn Plummer, CEO of The Annuity Expert. “It’s a powerful step toward financial freedom, making it easier to allocate resources to saving, investing, or spending on personal needs and interests.”

How much you can save by paying off your mortgage early

Let’s say you bought a $350,000 home last year, for which you took out a $250,000 mortgage loan at a 6.5% fixed interest rate for a 30-year term. You have 29 years left (348 months) to repay. Your current monthly principal and interest payment is $1,580. 

But if you begin making accelerated payments (going toward your principal) of $100 extra per month starting in month 13 (year two), which raises your monthly mortgage payment to $1,680, you’ll repay your loan 52 months earlier than scheduled and save a total of $54,014 in interest.

Using the same house/loan example, if you increase your accelerated payments to $200 extra per month instead of merely $100, you’ll reap even bigger rewards: Your total interest savings will be $90,162, and your mortgage will end seven years and five months early.

“If you can afford to pay double your monthly payment, you can likely cut a 30-year mortgage term in half,” says Bert Hofhuis, founder of Every Investor. “For instance, with a $200,000 mortgage loan at a 4% fixed interest rate, doubling your monthly payment can reduce the total interest from over $140,000 to less than $80,000 – saving over $60,000 in interest and cutting your term by 15 years. This accelerated payment method demonstrates the power of additional payments toward principal reduction.” 

Downsides to paying off your mortgage quickly

Before you jump at the chance to shorten your mortgage term and pocket greater savings, ponder the possible pitfalls of this approach.

First, you need to ensure that your lender and loan will permit you to pay off your mortgage early and make accelerated payments. Most mortgage loans allow this, but you’ll need to read the terms and conditions of your mortgage carefully and double-check with your lender on what’s allowed and the accepted methods of mortgage prepayment.

Be aware that some loans and lenders will tack on a fine or fee for making accelerated payments or paying off your loan earlier than scheduled.

Second, it makes more sense to adopt a prepayment strategy earlier in your loan’s term, when more of your monthly payment goes toward paying the interest. As you get closer to the term end date, you increasingly pay less toward interest every month, which means your ability to reap savings otherwise spent on interest decreases.

Still, paying off your loan earlier than scheduled at any point in your term will mean paying less money overall than not making accelerated payments at all.

“Making larger payments can reduce your monthly cash flow, possibly increase your tax burden because you may no longer qualify for the mortgage interest deduction, and limit your investment diversification,” cautions Plummer. “This reduction in liquidity may limit your ability to respond to emergencies or take advantage of other investment opportunities.”

On that latter point, let’s imagine your mortgage’s fixed rate is only 4%. You could make your money work harder for you by putting that extra cash into a higher-yielding investment that you believe will surpass a 4% rate of return—perhaps even a certificate of deposit.

Or, assume you carry high-interest credit card debt. Devoting extra dollars toward a card that, for example, charges 20% interest on your unpaid balance is a smarter tactic than paying off a debt with 4% interest. 

“To reduce these risks, you should consult with a financial advisor to weigh the benefits of extra mortgage payments against potential returns from other investments,” suggests Jared Frost, owner of Blue Pebble Homes + Loans. 

Good candidates for paying off your mortgage faster

Mortgage prepayment can make sense for the right prospects, the experts agree.

“Individuals with no other high-interest debt, who have substantial savings, and possess a desire to be debt-free should consider it. This strategy suits those with a stable financial foundation looking to eliminate monthly obligations and interest expenses,” Hofhuis continues. “It’s particularly advantageous for people approaching retirement, as it reduces the need for a fixed income to cover housing costs – thus enhancing financial security in retirement.”

Think twice, however, if you lack steady and sufficient income, ample savings, or a healthy emergency fund.

“Prioritize paying off your mortgage early only when you have saved up enough cash for three to six months’ worth of necessities,” advises Andy Kolodgie, CEO of Sell My House Fast.

Strategies for faster mortgage repayment

Here are your options for paying off your mortgage loan more quickly:

• Make accelerated payments monthly. Write a larger check or send a bigger electronic payment to your lender every month, carefully indicating to your lender that the extra dollars should be applied to your outstanding principal. 
• Make accelerated biweekly payments. “Make a smaller extra payment every two weeks, twice a month, instead of one large accelerated payment each month,” says Kolodgie.
• Pay an extra month’s worth. Instead of making 12 monthly payments per year, send 13 payments (for example, two full amount payments every December).
• Make a one-time or occasional lump-sum payment. “These could come from bonuses, tax returns, inheritances, or any unexpected income. Even one or two substantial extra payments can shorten your loan term and help you save on interest,” adds Frost.
• Recast your mortgage. If your lender allows it, you can make a large payment toward the principal and have the loan re-amortized based on the reduced balance, with your term and interest rate remaining unchanged. “This results in lower monthly payments for the remainder of the loan term and can also help pay off your mortgage earlier if you continue to make payments at the original amount,” Frost notes.
• Refinance your mortgage. Think about resetting your loan entirely by refinancing if you can lock in a lower fixed rate and/or shorten your loan’s term. “Switching from a 30-year to a 15-year mortgage term can significantly decrease the amount of interest paid and shorten your path to full homeownership,” says Hofhuis. 

What to consider carefully

Don’t feel pressure to pay off your mortgage earlier than anticipated, unless you need or want to refinance, move, or pivot following a major life change. Crunch the numbers and determine how much you can benefit from prepaying your mortgage and shortening its term versus saving those dollars or investing them elsewhere.

For extra peace of mind, speak with a trusted personal finance professional, tax expert, or certified financial planner.