5 Savvy Strategies For Paying Off Mortgage Debt Early

Although buying a house is typically considered a long-term financial commitment, paying off your mortgage earlier can be in your best interest.

On top of giving you peace of mind, this strategy allows you to knock off thousands of dollars in interest payments, which you can invest to accelerate your journey to financial freedom or early retirement.

How To Pay Off Your Mortgage Faster

Here are five savvy strategies to pay off your mortgage early.

1. Make Additional Mortgage Payments

At the start of your mortgage term, a higher proportion of your payments go toward the interest rather than the principal.

So, to reduce interest rates faster, ask your lender whether you can make additional mortgage payments that count toward your principal, not the interest.

The earlier you implement this strategy, the better, as you can significantly save on interest payments over the loan’s lifespan.

2. Round Up Your Payments

One budget-friendly way to pay off mortgages faster is to round up your payments. For example, if you’re paying $1,825 monthly, consider rounding it to $1,900 instead.

Paying a few dollars more usually won’t significantly affect your monthly budget. However, this minor adjustment can easily shave several months or even years off your mortgage loan.

3. Use Unexpected Income

Paying off your mortgage might not be one of the first things that come to mind when you receive a bonus or monetary gift. But it should be considered if you want to maximize the value of your windfall.

Every additional dollar you allocate toward your mortgage results in lower interest payments. To see the potential impact, estimate how much you get in bonuses and gifts and use a mortgage calculator to see how much you can save if you put them toward your mortgage loan.

4. Refinance Your Mortgage

Refinancing your mortgage and choosing a shorter term offers two potential benefits: reducing your loan term and paying lower interest rates.

Sure, you might face higher monthly payments. But it's worth considering when you think about the potential savings over the life of your loan, which can easily reach hundreds of thousands of dollars.

An alternative to refinancing your mortgage is to pretend you did. Do the math to see how much you’d need to pay monthly if you refinanced to a shorter term, and then adjust your actual payments accordingly.

The second method offers the benefits of refinancing but doesn’t require committing to a new loan, allowing you to stay flexible when money is tight. Don’t forget to check with your lender to learn about their prepayment terms and conditions.

5. Make One Extra Payment Per Year

Making one extra yearly payment is another straightforward way to trim off several years of your loan’s life. And the best part is, there’s no need to pay in a lump sum to make this extra payment.

One strategy is to make 26 biweekly payments instead of 12 monthly payments. You effectively make an extra payment each year.

Another manageable way to achieve this strategy is to pay an additional one-twelfth of your regular monthly payments each month. This extra amount eventually adds up to a full extra payment.

Why Should You Pay Off Your Mortgage Early?

It may be intuitive just to follow the standard payment schedule for your mortgage. But paying it off faster has numerous benefits, including these major ones:

You Save On Interest Costs

The thousands of dollars you could save in interest if you paid your mortgage faster can be put to better use or invested in revenue-generating opportunities that can make you money.

You’re Protected From Financial Instability

Mortgages are typically one of Americans’ most significant expenses. The earlier you pay it off, the more financially secure you'll be, even if the economy takes a downturn or you face unexpected circumstances such as getting laid off.

Moreover, paying off your loan increases the amount of your home equity, which influences how easily you can tap into resources such as loans or lines of credit when needed.

You Simplify Your Retirement Planning

When your home is paid off, budgeting and planning for retirement is easier. Since your housing expenses are now under control, you can easily allocate your monthly income for other costs.

By Enoch Omololu, Contributor