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How to Pay Off Your Mortgage Early

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Dana George
Author: Dana George
Dana George
Dana George
Writer

Dana George has a BA in Management and Organization Development from Spring Arbor University. For more than 25 years, she has written and reported on business and finance, and she's still passionate about her work. Dana and her husband recently moved to Champaign, Illinois, home of the Fighting Illini. And though she finds the color orange unflattering on most people, she thinks they'll enjoy Champaign tremendously.

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If you've spent years paying a mortgage that feels like a weight around your neck, you may be wondering how you can pay it off early. Here, we'll cover some of the ways people become mortgage-free, and discuss whether getting rid of your mortgage earlier than planned makes sense for you.

Can I pay off my mortgage early?

For most people, a mortgage payment is the largest monthly expense. It is possible to get rid of that mortgage payment -- but first, find out if your lender charges a prepayment penalty.

A prepayment penalty is a fee some lenders charge customers who pay off a mortgage loan early. Mortgage interest is the lifeblood of mortgage companies, and when you pay off your principal balance early, the lender loses out on years of interest payments you would have made. That's why lenders will sometimes charge a prepayment penalty when a mortgage is paid off early. Check your mortgage contract or call your lender to learn whether it charges a prepayment penalty for early payoff.

A quick note about prepayment penalties: Even if your lender charges a prepayment penalty, there is likely a loophole. For example, most lenders allow you to pay off up to 20% of your principal balance each year without penalty. Say your principal balance is $200,000. You can pay an extra $40,000 each year toward the mortgage balance without a penalty.

If you're one of the lucky borrowers whose lender does not charge a prepayment penalty, you're good to go. And even if your lender does charge a prepayment penalty, weigh the cost of the penalty against how much money you save by paying the mortgage debt off early.

How can I pay off my mortgage early?

Paying a mortgage off early is not a one-size-fits-all proposition. There are several options -- some simpler than others, but all effective.

Biweekly mortgage payments

Typically, homeowners make a single monthly mortgage payment. Biweekly mortgage payments involve making a payment every two weeks. In this case, you make half a mortgage payment every two weeks. For example, if your monthly mortgage payment is $1,600, you pay $800.

Here's how a biweekly mortgage helps: Homeowners typically make 12 monthly mortgage payments per year. With biweekly payments, you end up making 13 full mortgage payments each year.

The first benefit of paying a mortgage biweekly is how much time it shaves off your repayment term.

Mortgage Terms Standard Repayment Biweekly Repayment
$250,000 mortgage for 30 years at 4.25% APR 360 months (30 years) 309 months (25 years, 9 months)

While paying your mortgage off four years and three months earlier may not sound impressive, here's how much biweekly payments would save in interest payments:

Standard Repayment Biweekly Repayment Total Savings
$441,757 interest payments $309,317 interest payments $132,440

One extra payment a year

Making one additional payment per year offers the same benefits as making biweekly payments. You not only pay down your mortgage principal faster, you save thousands of dollars in the long run. There are several ways to swing one extra payment each year:

  • Use your tax refund or bonus.
  • Put a little aside each month and make one extra payment in December.
  • Take on a side hustle you enjoy, and dedicate your earnings to an extra mortgage payment.

Recast loan

Let's say you come into an inheritance, sell a piece of land, receive a large bonus, or otherwise find yourself with a lump sum of money. A mortgage recast, also referred to as "mortgage amortization," lets you put that money toward the principal balance. When a mortgage is recast, the terms and interest rate stay the same. However, because you now owe less on your balance, your monthly payment is reduced for the remainder of the loan. Then, you can use your monthly savings to make extra payments and pay off your mortgage early.

Refinance

Here are two ways to pay your mortgage off early by refinancing:

  • Refinance for 30 years and use the monthly savings to pay down the mortgage principal.
  • Change the loan term from 30 to 15 years, snagging a lower interest rate (shorter loans typically score lower mortgage interest rates), and pay the mortgage off even faster by making the occasional extra mortgage payment.

Check 15-year rates here.

Be sure to shop around for the best rate and terms before refinancing your loan. Working with the best refinancing lenders simplifies the entire process. Check things like closing costs and find out if the lender imposes a prepayment penalty.

Also, don't automatically assume your current mortgage lender will give you the best deal. Compare several mortgage lenders before signing on the dotted line. Our simple mortgage calculator can help you figure out how much you can afford to pay each month.

Should you pay off your mortgage early?

It's fair to say most homeowners love the idea of getting out from under their mortgage debt. Before you take the leap, though, ask yourself if it makes sense. If dedicating yourself to paying your mortgage off diverts money from other equally important financial issues, you may want to pump the brakes. You can also revisit paying the mortgage off once you've taken care of these other issues. Before you make a final decision, ask yourself these questions:

  • Do I need to pay off credit card debt?
  • Is my credit score high enough to access the best, lowest mortgage rates?
  • Do I have a savings account (or another type of account) that holds a large enough emergency fund to cover three to six months' worth of bills?
  • Am I contributing enough to retirement savings? Will I be able to retire at a reasonable age?
  • Do I itemize my tax return each year? Will I miss the mortgage interest deduction if I pay the mortgage off early, or will the monthly savings more than make up for the lost deduction?
  • Is my mortgage my most pressing financial obligation? Or do I have others that weigh me down and need to be addressed first?

For many, early mortgage payoff is the worthiest of goals. Sure, you still have to pay taxes, insurance, and upkeep, but the property is all yours. If paying off your mortgage early is on your bucket list, there are plenty of ways to accomplish it. The trick is to find the repayment plan that works best for your situation and fits your monthly budget.

Still have questions?

Here are some other questions we've answered:

FAQs

  • Yes, you can pay your mortgage off early -- although you may get a prepayment penalty. Call your lender to find out if you'll be charged a prepayment penalty for early payoff.

  • There are several ways to pay off your mortgage early: for example, you could take biweekly payments or one extra payment a year, recast the mortgage, or refinance.

  • Whether or not you should pay off your mortgage early depends on the overall condition of your finances. Consider issues like high-interest credit card debt, the state of your retirement account, and whether you have enough in an emergency fund when making your decision.