How to Pay-off a Mortgage Faster

When you have a 30-year mortgage, it may seem like an eternity before you’ll have your mortgage paid off and own your home free and clear. Even if you have a 15-year mortgage, paying off your home faster offers many benefits and can save you a lot of money in interest. 

Using different methods and strategies, you can slash the amount of time it takes to pay-off your mortgage. Some strategies don’t require you to spend extra money, while others will need you to be more strict with your budget. If paying off your mortgage faster is something that appeals to you, here are a few ways to pay-off your mortgage faster. 

Consider Paying Twice a Week

A good strategy to pay-off your mortgage faster is to split your payment in half and pay every two weeks. By paying your mortgage in this manner, you will end up making 13 payments by the end of the year, which will cut your 30-year mortgage down by four to five years. 

For a 15-year loan, this method can cut your loan down by one to three years based on your interest rate and loan amount. 

Plan for an Additional Payment Annually

Paying your mortgage twice per month can be a bit of a hassle for some people and can make managing your monthly budget a little more challenging. If you’re not up to the tasks of biweekly mortgage payments, then consider making an extra payment each year.

If you have a part-time job or side hustle that nets you some extra cash each month, or you’re better at saving money each month, consider saving enough money for an additional mortgage payment at the end of each year. When you send your extra payment, make sure to indicate the payment is to be applied toward the loan principal. By making an additional payment each year and using it toward the loan principal, you can reduce your repayment term by up to five years. 

How Many Extras Can You Pay Each Month Towards Principal?

If you don’t have the discipline to save money for an extra mortgage payment each year, consider sending extra money every month toward the loan principal. A suitable method for sending extra money each month is rounding up the payment to the following $100 amount. Make sure to speak with your lender to find out how it handles payments that exceed your regular payment amount. The additional amount must be applied to the principal to reduce your loan term and interest.

Consider Recasting Your Mortgage

Let’s say you win the lottery, get a large inheritance, or receive some other type of monetary windfall. In that case, you may want to consider recasting your mortgage. Not all lenders offer this service, so it’s worth looking into with your lender if you find yourself with a large sum of extra money. 

Recasting works when lenders re-amortize your loan with the same term but a lower monthly payment based on the reduced principal. For this strategy to work, you have to apply the extra money toward the principal and continue to make your previous payment amount each month. 

Refinancing Your Mortgage

Refinancing your original mortgage is another excellent way to pay-off your home faster. Refinancing your loan with a lower interest rate can save you a lot of money, which you can use to make additional monthly or annual payments. You can also refinance your loan for a shorter term. If you have a 30-year mortgage, you can refinance for a 15-year mortgage. Keep in mind that a shorter-term loan will mean higher monthly payments, but you could see less interest over the life of the loan. One myth about refinancing a 30-year mortgage for a 15-year mortgage is that your monthly payment will be doubled, which isn’t the case. 

Go For Shorter Amortization Term

Fifteen-year and 30-year mortgages are not the only games in town. While they’re the most common, you can find lenders who offer flexible term mortgages and shorter amortization terms. Shorter-term loans mean less interest, which will save you a great deal of money. A good way to refinance with a shorter amortization term is to find an independent mortgage broker to help you with a short-term loan that you can afford to pay. 

Consider Adjustable-Rate Mortgage

Adjustable-rate mortgages scare many homeowners, especially after the housing market collapse in 2008. What’s scary about adjustable-rate mortgages is the higher interest rate after a specified period. It can be difficult for many homeowners to make their mortgage payments after the interest rate increases. But despite their checkered past, adjustable-rate mortgages can be a good tool for paying off your mortgage faster.

If you’re financially stable and have a good and reliable income, an adjustable-rate mortgage allows you the opportunity to build equity in a short amount of time. During the low-interest-rate period, you can save money and apply it toward the principal. Adjustable-rate mortgages aren’t for everyone and work best for families who plan to move in a few years. 

Pros and Cons of Paying a Mortgage Early

Paying off your mortgage faster offers many benefits, but it’s not for everyone. There are several things to consider before taking on a plan to pay-off your mortgage early. Here are some pros and cons of paying off your mortgage faster:

Pros of Paying off Your Mortgage Early

Fewer Financial Worries

Life can be a lot less stressful when you no longer have a house payment to worry about. Paying off your mortgage early offers peace of mind and a certain sense of pride, knowing that your homeownership is secure. 

No Monthly Payments

When you don’t have a monthly mortgage payment, you have more financial freedom to do the things you love or plan for retirement. The extra money you save can be used for everything from vacations to your kid’s college education. 

Free and Clear Home Ownership

Suppose you lose your job or fall into financial hardship; having your home paid off means you don’t have to worry about losing the roof over your head. In addition, owning your home free and clear gives you a great sense of accomplishment. 

Saves Money

One of the most incredible benefits of paying off your mortgage early is saving money. Every time you make a mortgage payment, part of the money goes toward interest, so the fewer payment you have, the more money you save. Paying off your mortgage faster can save you thousands of dollars.

Cons of Paying off Your Mortgage Early

Loss of Investment Potential

Any extra money you put toward paying off your mortgage early can be invested in stocks or other investments that can yield higher returns than using the money for paying off your home faster. 

Prepayment Penalties

Many lenders charge prepayment penalties if you pay-off your mortgage, sell, or refinance within a specific period of closing on your original mortgage. If your goal is to pay-off your mortgage within three to five years, this could be an issue. However, if you’re going to take longer than five years, you shouldn’t have any problems with prepayment penalties. 

Loss of Mortgage Interest Tax Deduction

You can claim any amount you pay on mortgage interest on your taxes to lower your taxable income. If you pay-off your mortgage early, you lose this deduction. Read on our Article on Property Taxes state wise to know more about this.

See Also: Things you need to be pre-approved for a Mortgage | What is HELOC? | How to Refinance your Mortgage?


How to Pay-off a Mortgage in 15 Years

Paying off a 30-year mortgage in 15 years is doable, but you’ll have to tighten your financial belt. For instance, if you have a $200,000, 30-year mortgage at four percent interest, you’ll have to pay an extra $500 per month to pay-off your home in 15 years. 

How to Pay-off a Mortgage in 10 Years

Paying off your mortgage in ten years can be more challenging than paying off the loan in 15 years and will take some creative planning and thinking. One option is to refinance your 30-year mortgage for a 15-year mortgage and make additional annual or monthly payments toward the principal.

How to Pay-off a Mortgage in 5 Years

Using an amortization calculator can help you determine the amount and years you want to pay-off your mortgage. If you’re looking to pay-off your mortgage in five years, the calculator will show you the monthly payment amount. For five years, you’ll be looking at a high monthly payment, but you will see a massive drop in the interest you pay over the loan term.

How Many Years Does an Extra Mortgage Payment Take Off?

Each year, a single extra mortgage payment can take roughly four years off your mortgage term. Keep in mind that the amount, interest rate, and duration of the loan also play a part in how much time an extra annual payment takes off the term of your mortgage. 

Your home is most likely your largest and most expensive asset. Paying off your mortgage faster is an excellent strategy to save money and put extra cash in your pocket monthly. By using some of these strategies, you can take years off your mortgage term and lower the interest throughout your mortgage.

Also See: The Entire Process of Closing on a Home | List of Affordable Movers in the USA | How to get Mortgage when you are Self Employed

Written by

Rostislav Shetman is the founder of 9Kilo Moving. He has been in the moving and relocation industry for more than 25 years, making him an expert in his field. Rostislav started as a helper, dispatcher and driver and has worked his way up to owning his own company. He takes great pride in his work and enjoys helping people relocate across the United States of America. When he's not working, Rostislav enjoys spending time with his family and friends. They are the light of his life and bring him happiness every day.