Have you ever given any thought to paying your mortgage off early? Did you know it doesn’t have to be a life sentence of 30 years of payments?
I wish I would have known these ways to pay your mortgage off early over 10 years ago when we bought our house. After 10 years of mortgage payments, we’d hardly made a dent in our loan balance.
Check out the Resources Page for tons of other money saving resources!
Related: Read the How I Saved series, where I document how I save money each week. We apply that savings to our mortgage, and plan to pay it off in the next few years.
Here are some compelling reasons why you should consider paying your mortgage off early. And the simple steps you can take to make that happen.
In case you aren’t too familiar with how your mortgage payments are calculated, there are two main components: principal and interest.
Your payment is also made up of escrow collection for paying insurance and property taxes, and possibly other miscellaneous fees. But the majority of your payment goes to principal and interest.
Principal is the amount you borrowed to buy your house. (The price of the house minus your down payment.) Interest is what your mortgage lender charges you to loan you that money.
For the majority of your loan, you will pay far more in interest every month than principal. This means that only a very small percentage of your monthly payment actually goes toward paying back what you owe.
In fact, it can often take almost 2/3 the length of the loan before your monthly principal amount actually exceeds your interest payment.
Your lender wants to make LOTS OF MONEY off of you. That’s their business. That’s how they make money.
Log in to your mortgage account, or look at your statement. It will break down how your payment is applied to principal and interest.
Kind of shocking, isn’t it?
Maybe only $150 of your $1000 payment is actually going to pay your house off.
But you can actually pay extra each month, and have it applied to the principal. Since your interest is based on what you still owe, you will save tons of money in interest and be mortgage free years sooner!
Why you should pay your mortgage off early
Some people argue that paying your mortgage off early isn’t the best choice. They instead suggest investing that extra money and watching it grow.
I do understand their logic. They may also want the tax deduction that comes with paying mortgage interest.
But for me, it comes down to one thing.
The flexibility and opportunity that comes with being completely debt free. Not owing anybody one single cent.
Besides, there usually aren’t too many guarantees when you invest. You can get a great return on your money in the stock market. But it can also go horribly wrong. There are ways to invest with a guaranteed return, but the interest percentage isn’t very high.
The money you save in interest by paying your mortgage off early is guaranteed. So if your mortgage has a 4.5% interest rate, you’re pretty much getting a 4.5% percent return on your money.
Not to mention, imagine life with zero debt. You could keep most of your paycheck, to do with what you like. No more sending it all away to bills and banks.
It simply comes down to what you value most. If you would feel better investing your money versus paying off your home, then you should honor that.
Just remember to pay attention to how much of your precious income actually goes to making the banks richer.
Ways to pay off your mortgage early
Mortgages typically come in 10, 15, and 30 year lengths. If you currently have a 30 year mortgage, you might consider refinancing down to a 10 or 15 year loan. You will pay more each month, but it’s not twice as much like you’d think.
The shorter length of time it takes you to pay off your mortgage, the less interest you pay.
Or maybe your interest rate is considerably higher than today’s rates. If your rate is 1% more than current rates, you may want to consider remortgaging to a lower rate.
If you want to avoid the closing costs that incur when you get a new loan, just pretend you refinanced! Check out Dave Ramsey’s mortgage payoff calculator to find out how much extra you should pay each month to pay your house off in 10-15 years.
Pay extra each month
Paying extra toward your mortgage principal will significantly lower how much you owe, saving you money in interest and time for repayment.
If you don’t happen to have gobs of money lying around to send to your mortgage company, here are two ways to come up with extra cash.
Reduce your expenses
Here are some simple examples of ways cut your spending:
- Bring lunch to work
- Cook dinner at home
- Lower insurance costs
- Drink coffee from home
- Don’t buy new/full-priced clothes
- Take less expensive or fewer vacations
- Cut cable
- Shop sales and use coupons
If you want to learn how to slash your grocery budget in just 5 days, check out the FREE Grocery Shopping Makeover Challenge!
Increase your income
Some ideas for making more money:
- Side hustle/freelance – start a little business offering a service that others are willing to pay for
- Sell things – your house is probably full of things you don’t use that you could sell for extra cash
- Extra part time job
- Ask for a raise/promotion or find a higher paying job
- Rent out an extra room
Just don’t forget to make sure that extra payment is applied to the principal!
Disclaimer: Please check with your lender to make sure they allow extra payments, and to find out how to ensure your extra payments get applied strictly to principal.
Make 1-2 extra mortgage payments a year
If you get paid weekly, there are 4 months a year where you get 5 paychecks. If you get paid bi-weekly, there are 2 times per year when you get 3 paydays in a month.
Consider taking one or two of those extra checks and make an extra mortgage payment.
Even that one little change will save you thousands in interest and shave years off your mortgage repayment.
If your lender allows it, you could switch to making 2 half-payments a month instead of one full payment.
At the end of they year, you’ll have made 13 mortgage payments (26 half-payments), instead of the 12 you would have made by paying once a month.
This alone could knock up to 8 years off your mortgage repayment!
Round up your payment
Let’s say your payment is some oddball amount like $957.23. You could round your payment up to $1000 each month. That little change will shave a couple years off your mortgage repayment, and thousands in interest over the life of your loan.
You probably won’t even notice that tiny amount ‘missing’ from your bank account.
Use this round up repayment calculator to determine your exact savings.
Apply ‘found’ money
Use any lump sums of cash and apply it toward your mortgage.
Some examples of found money include:
- A raise
- Money you get for your birthday or other gifts
- Tax returns
- Work bonuses
This one is the most extreme, but if you really want to get rid of your mortgage payment, consider selling your big house and buying a smaller one.
You could potentially take the money you receive from selling your home and pay cash for the new one.
Tips for staying motivated
Sometimes it might be difficult to keep your motivation up during debt repayment. Mortgage payoff can be a long game.
Here are some tips for maintaining the intensity.
Keep your eyes on the prize. Watching the amount you owe lowering each month can be extremely motivating. Keep an eye on that number!
Tell people your plan. If you’re married, talk about your mortgage payoff plan often with your spouse. Tell the important (aka supportive) people in your life your plan to become debt free. This will help hold you accountable and energize your motivation.
Create short-term goals and challenges. Have a no-spend week or weekend (or month, if you’re extra brave!) and apply that savings to your mortgage. Or skip grocery shopping for a week and get creative with what you have in the fridge and pantry. Here’s how to set goals you’ll actually achieve.
- 12 things frugal people don’t do
- Where to start when you’re flat BROKE
- 10 cheap and easy meals ANYONE can make
- 5 easy meal planning strategies for beginners
- How to make your own meal planning kit (+ free printables!)
- How to reduce your grocery bill without using coupons
Even if you don’t have a mortgage, or if you have too many other types of debt to even think about paying your house off, these debt-slaying tricks can be applied to anything you owe.
Picture your life without debt, and focus on that. Don’t think of your debt repayment as a punishment.
It’s getting you closer to a life of freedom!
Linking up with The Thrifty Couple for Thrifty Thursday