How To Pay Off Mortgage Early | 7 Tips!

For most households, the mortgage payment is the single biggest monthly expense. Paying the mortgage can be the cause of a lot of stress and for most people it lasts for 30 years. A common question we often receive is “how can I pay off my mortgage early“? If you’re interested in learning how to pay off your mortgage fast then read on, this post is for you.

7 Ways to Pay Off Your Mortgage Early

Here are our top 7 ways to pay off your mortgage early.

1) Make Bi-Weekly Payments

Most people receive their salary or wages bi-weekly (i.e. every two weeks) but only pay their mortgage once per month. One great way to pay off your mortgage early is to make mortgage payments bi-weekly instead of monthly. In practice this means you’ll take 50% of your current monthly mortgage payment and pay it to your lender every two weeks. What is the result? Instead of making 12 full monthly payments you’ll end up making 26 half payments. What is the impact? Implementing this strategy will result in your mortgage being paid off about five years faster!

If you’re interested in implementing bi-weekly mortgage payments check with your lender to see if they have an easy option to enroll (many do). You’ll want to ensure there are no extra processing fees or charges to do this approach. Also check to ensure there are no pre-payment penalties. If you have the funds and can make bi-weekly payments without incurring any additional fees this can be a fantastic strategy for paying off your mortgage early.

2) Make Small Extra Payments Every Month

Making a small extra payment on top of your normal monthly mortgage payment is a very powerful way to pay off your mortgage early. Here is a simple example:

Initial Mortgage Term: 30 Years
Years Remaining: 25
Original Mortgage Balance: $350,000
Interest Rate: 4.5%
Current Payment: $1,773
Extra Monthly Payment: $250
New Monthly Payment: $2,023
Years Shorten on Mortgage: 5 Years!!! 🥳

In this example, taking your mortgage payment from $1,773 to just over $2k a month shaves off an incredible 5 years from the life of the loan! That could mean an earlier retirement, additional funds for travel or education, or a host of other things. The relatively small extra payment can have a huge impact on paying off your mortgage early.

Once again check with your lender to ensure there are no pre-payment penalties or other fees. Many won’t advertise this option or the bi-weekly option from #1 (after all… they want to earn as much interest from you as possible!) but most do allow it with no fees or changes.

3) Get Shorter Term Mortgage (e.g. 15 Years)

Want a tip on how to pay of your mortgage twice as fast as the average home owner? Easy! Get a 15 year mortgage.

It’s that easy right?!? Okay I’ll admit, this is easier said than done as it does require a greater cash outflow each month. But if you can fit the 15 year mortgage into your budget it can be an absolute game changer.

Let’s look at some numbers on for a $350,000 mortgage.

You can see by adding $746 a month to your mortgage payment results in the mortgage being paid off in half the time. And you’ll save $166,000 in interest expenses as well. Often the interest rates on a 15 year mortgage are nearly a full point lower than the rates on a 30 year mortgage.

If you can afford to make the higher monthly payment your future self will thank you. Imaging buying a home at age 30 and having it fully paid off by age 45. That would feel good!

4) Refinance Your Mortgage

Similar to #3, another great strategy is to re-finance into a 15 year mortgage. For example, if you have a 30 year mortgage with 25 years left you’ll still shave off 10 years.

If your goal is to pay off your mortgage as fast as possible you do not want to simply re-finance your 30 year into another 30 year (even if the rates are lower). That will actually result in a longer payoff period as the 30 year clock resets.

Refinancing into a 15 year mortgage can have two amazing benefits:

1. Lower interest rate
2. Faster loan payoff

By re-financing into a 15 year mortgage you’ll save money on interest expense AND pay off the loan sooner. Two awesome benefits that can get you to financial freedom sooner rather than later.

Watch-out: The caveat here is that you need to ensure you have the financial means to pay the higher monthly payment both today and into the future.  Obviously, cutting the term of your mortgage in half on the same loan balance will result in higher monthly payments. If you are already struggling to pay your current mortgage the last thing you want to do is further stretch yourself by way of a larger monthly payment. For people that can comfortably make the payment then this is a powerful strategy to help pay off your mortgage early. Being stretched too thin each month will not be a comfortable feeling or a recipe for financial health so if the higher payment is too much consider another of the ways to pay off your mortgage early.

5) Create A Mortgage Piggy Bank Fund

Kid Piggy Bank

Did you have a piggy bank as a kid? Perhaps you begrudgingly put your allowance into the piggy bank waiting for it to accumulate enough you could buy that special toy you had your eye one? As a kid it sure was hard to resist the temptation of spending money immediately and instead defer that gratification until later for something bigger and better. I can remember being really happy the (few) times I had the patience to save and get the thing I really wanted.

What does a kid’s piggy bank have to do with paying off a mortgage early? Well as adults we face similar emotional pulls to spend our money instead of save. And the toys that interest us are much more expensive. What sounds more exciting… buying a nice new car today or putting money in a savings account that you’ll use to pay off your mortgage many years down the line? Most people would say the car.

Adult Piggy Bank

But just like kids often we quickly become bored with our new toys. We’d be better served by being patient and saving for something that will bring us more happiness. Think about how much happier we would be if we didn’t have that monthly payment hanging over our heads. It might allow us to retire early, take more vacations, or simply feel a greater peace of mind. All great things!

We can use this piggy bank strategy as a tool to help pay off our mortgage early. How? Simply create a separate bank account or ‘piggy bank’ where you put extra money each month. This account is your mortgage piggy bank. You can make this a monthly habit where you put in a fixed amount (say $100). Or the amount you deposit can vary depending on how much money you have made or have available. After you have saved up a certain amount ($1,000) you can cut a check to your lender and have them apply it to your mortgage.

Consciously setting aside mortgage money in your piggy bank each month can help to pay off your mortgage early.

TIP: If you do create a separate account make sure it is in a high interest checking or savings. You want that money to be growing in your piggy bank!

6) Sell Your House

One overlooked way to pay off your mortgage early is to sell your house. The real estate market is near an all-time high and most people have built up equity in their homes. Selling allows buyers to pay off their mortgage and consider other living options.

Important: You should be sure to think through this strategy carefully for a few reasons:

• Transaction Costs: There are transaction costs with selling a home. You’ll generally pay about 6% of the sale price to realtors. And furuther,
• Where to live next?: After selling your current home you’ll still need a place to live which will of course cost money. You’ll want to understand the financial side of your next home whether that is renting, buying, or living with family.

Want to know one example where selling works great? One situation we’ve seen success with is downsizing your lifestyle. Say you have a $400,000 home and are okay with living in a $275,000 home. This could be because you have kids leaving the house, no longer need the space, or are simply comfortable in a less expensive home or neighborhood. The net result is you’ll pay less each month which will allow you more money to save and invest.

7) Don’t Get A Big Mortgage In The First Place

Okay I know this strategy doesn’t quite fit but it is so important. So many people have stretched far beyond their means and will literally be working their entire lives to support their lifestyle. You financial freedom comes down to more money coming in than is going out. If you have money going out by way of a big mortgage payment, a car payment, student loans, and more you’ll be looking at a long road. Avoiding that large mortgage in the first place will be a huge factor in your journey to financial health and freedom.

Do you have other ideas about how to pay off mortgage early? Let us know in the comments below!