3 Tips to Help You Pay Off Your Mortgage Early

Dale Lavine October 25, 2022 | 4 min read
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When most people think of mortgage terms, they think of the very common 30-year commitment, which can feel like a lifetime. With a term like that, a mortgage is one of the longest “relationships” you’ll ever have — but that doesn’t mean you can’t benefit from that investment between now and then.

Consider this: in 2021, the average age of a first-time home buyer was 33. If those people stuck with a 30-year mortgage to term, they’d be 63 by the time the loan was paid off. Sixty-three also happens to be the average age of retirement in the United States.

Of course, many people move before their mortgage is paid off. Others opt to refinance, and both options have their upsides depending on the situation. But what if we told you there were ways to pay down (or pay off) your mortgage well before maturity?

3 Tips To Paying Off Your Mortgage

Tip 1: Make An Extra One-Time Payment Each Year

Setting aside a little extra cash every month and making an annual “lump sum” payment is an easy way to pay down your mortgage earlier than previously scheduled. Instead of getting a latte every morning (or finding another luxury to skip — after all, we all need our coffee), put that money in a designated savings account and let it accrue over the year.

Want to get extra bold with your payment plan? Add whatever bonuses, commission checks, and/or cash gifts you receive to the account. At the end of the year, make a large principal-only payment toward your home loan, separate from your standard mortgage bill.

Pro Tip: Contact your lender or review your closing disclosure to find out if there are any prepayment penalties, or if they’ll accept partial payments on top of your standard monthly payment. 

Tip 2: Make Bi-Weekly Payments

Another method to paying off your mortgage early is splitting your monthly payment into bi-weekly payments, also known as making payments every other week. With this approach you’d make 26 payments, each of which would be half as much as a full monthly mortgage bill.

For example, if you had a $2,000 mortgage payment per month and made monthly payments, you’d be paying $24,000 per year. With $1,000 bi-weekly payments, you’d be paying $26,000 per year — or adding a full extra payment per year.

Pro Tip: Not every lender accepts this style of payment. Speak with your lender to find out if partial payments are okay or if full payments are preferred. 

Tip 3: Refinance With A Shorter Term

For homeowners who have been chipping away at their home loan balance for a few years, or for those who are simply looking for a better rate (aren’t we all?), refinancing is always an option. While there can be upfront costs associated with refinancing, if you’re looking for a shorter term, you can look into swapping your 30-year mortgage for a 10- or 15-year mortgage.

The good news? If you’ve followed the tips above — making larger lump sum payments and making bi-weekly payments (or adding a little extra to your monthly payment) — you should see better results when refinancing.

Pro Tip: The caveat here is that even with substantially lower interest rates, your monthly payment will likely still be higher than what you’ve been paying, so budget accordingly. 

Considering The Cons

We love the idea of taking control of one’s finances, and who wouldn’t want to own their home outright? However, there are considerations to be made when thinking about paying off your mortgage early. In the interest (ha) of helping you make the best financial decision for you and your future goals, here are some things to think about before taking action on the tips above:

  1. By paying off your loan, you’ll lose out on the ability to deduct the interest you’re paying when it comes time to file taxes.
  2. You may be responsible for a prepayment penalty. Those amounts vary, and some lenders may not charge you at all, but it’s something to think about.
  3. Closing an account — especially one you’ve had for a few years or longer — will temporarily bring down your credit score.

If these are all things that you think you can live with, then go forth and conquer your home financing. And if you want to refinance once rates drop, we can help with that too!

At the end of the year, make a large principal-only payment toward your home loan, separate from your standard mortgage bill.

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