Last Updated January 25, 2021
How would it feel to finally pay off your mortgage early and be financially free? Part of becoming financially free is getting rid of debt. For most of us, our biggest debt is our mortgage. Find out the best ways to pay off your mortgage early and finally have financial freedom.
Benefits Of Paying Off Your Mortgage Early?
For some, paying off their mortgage is a life long financial goal that they would love to achieve — and for good reason. Here are some benefits of paying off your mortgage early:
- It eliminates a huge monthly expense and frees up a lot of cash to do other things.
- You save potentially thousands of dollars on interest.
- You have peace of mind knowing you got rid of one of your largest debt — or completely debt-free.
- You have the security to tap the equity in your home if you need money later.
- You have financial freedom to live life the way you want.
- You reduce the risk of losing your home if you fall on hard financial times.
So you can see why paying off a mortgage early is a dream for many homeowners.
CAN You Pay Off Your Mortgage Early?
Before we talk about ways to pay off your mortgage early, the first thing you need to do is make sure you can even pay off your mortgage early. Some companies have prepayment penalties or only accept extra payments at specific times. So, check with your mortgage company first before you make any extra payments.
Also, whenever you make an extra payment towards your mortgage, make sure to include a note that says “principal only”. Some banks will take that extra payment and put it towards paying down both the principal and interest on the loan (or next month’s payment). So you want to be clear what that extra payment is for.
Tips To Pay Off Your Mortgage Early
1. Make Extra Payments
Paying down a little bit of extra principal on your loan can save you big on interest payments on the loan—not to mention getting out of debt faster. So consider paying just a little extra on your loan every month.
For example, if your loan payment is $1,860 per month, you can round up to $1,900. Remember to specify to your bank that the extra $40 is payment to go towards the principal. Even that extra $40 a month will save you a lot of interest and speed up you paying off your mortgage faster than you think.
Let’s say you have a 30-year $200,000 mortgage at an interest rate of 5%. If you pay an extra $40 towards your principal every month, you will save a total of $17,040 in interest payments and pay off your loan 2 years, 4 months earlier. So remember, every little bit counts!
An easy way to find money to put towards extra payments is with a budget. With a budget, you can see where your money is going every month. This will give you the information you need to see what areas you can cut back on. Making some small sacrifices can go a long way to help you pay off your mortgage early.
If you need help setting up a budget, you can start with this FREE Monthly Budget Printable or use one of my budget excel templates.
This budget spreadsheet is how I was able to save over 50% of my income. If you want to learn more about exactly how I use this excel spreadsheet, you can read my detailed article “How I Use My Monthly And Yearly Household Budget Spreadsheet.”
2. Make Biweekly Payments
One of my favorite tips to pay off your mortgage quicker is to make biweekly payments. Instead of paying your mortgage once every month, pay half that amount every two weeks.
For example, if your mortgage payment is $2,000 per month, pay $1,000 every two weeks instead. At the end of the year, you would have made one extra monthly payment towards your mortgage. This is because there are 52 weeks in the year; therefore, a biweekly payment will result in 13 full-sized payments instead of the normal 12 payments.
Paying your mortgage biweekly, instead of monthly will not only allow you to pay off your mortgage much faster, but it will also save you a ton of money on interest payments.
Let’s say for example you have a 30-year $350,000 mortgage at an interest rate of 5%. Making biweekly payments will allow you to pay off your home in 25 years and save you $62,184.26 in total interest.
If for any reason your lender isn’t open to biweekly payments, simply open a new bank account specifically to hold your mortgage payments. Deposit your biweekly payment (half monthly payment) every two weeks. Then use the money in this account to make your full mortgage payment every month.
At the end of the year, use the money in this account to make an extra monthly payment. Remember to mark this extra payment as “principal only”.
This is a truly simple way to pay off your mortgage faster especially if you also get paid biweekly. If you want to see how much you can save on your mortgage by making biweekly payments, you can check out this biweekly mortgage calculator.
3. Put Your Windfalls Towards Your Mortgage
One of the easiest tips to pay off your mortgage early is to put your extra cash towards your mortgage. If you’re lucky enough to get a tax refund or a bonus from your job every year, you can put that extra money towards your mortgage.
You can also put any extra money from gifts, side hustles, or raises towards your mortgage. You probably won’t miss this extra money because you’re not used to having it. So use that money as an extra payment towards your mortgage instead of spending it.
4. Refinance To A Shorter Loan
If you have a 30-year mortgage consider refinancing it to a 15 or 20-year loan. Shorter loan terms usually have lower interest rates. So, if you already have somewhat of a high interest mortgage, you might find your monthly payments are not much higher that what you’re paying now.
Use a mortgage calculator and play around with the numbers so you can see what your monthly payments would be if you were to refinance. Just make sure you’re not biting off more than you can chew, and that your monthly payments are still affordable.
Only refinance if you can secure a loan lower than the interest rate you’re paying now. If you already have a low-interest rate, or can’t get a lower interest rate than what you currently have, you can pay on your 30-year mortgage like it’s a 15-year mortgage.
The extra advantage of paying your mortgage like you have a shorter loan term (without actually refinancing) is you also save money on closing costs.
5. Get A Cheaper Home
If you’re really serious about getting rid of your mortgage early, get a cheaper home. This is one of the best tips to pay off your mortgage quicker.
With the profits you get from your old home, you might be able to even pay cash for your new home. However, even if you still need a mortgage on your new home, you still would be reducing your debt. And remember, the smaller your mortgage, the quicker you can pay it off.
6. Put Down A Hefty Down Payment
If you decide to buy a new home, make sure you put down a strong down payment. I recommend putting down at least 20%. Putting more money down on your home can help you in many ways. For example:
- You can avoid paying private mortgage insurance (PMI)
If you put 20% or more down on your property, you’re not required to get PMI by your lender. PMI costs around .5% to 1%—so on a $300,000 mortgage, PMI will cost you $1,500 to $3,000 a year.
- Your mortgage payment will be lower
Your mortgage payment will be lower because it’s less money you will need to borrow from the bank. The lower your mortgage payment is each month, the easier it makes it for you to pay off your mortgage early.
- You can probably get a better deal on your new home.
Sellers like to see strong financials from buyers because that reduces the chances of the deal falling through. So if you make an offer on a house with a higher down payment, the seller would be more inclined to take your offer over other buyers.
7. Rent Out Space
One of my last tips to pay off your mortgage early is to rent out space. If you have any extra space in your home, consider renting it out.
You can rent out your guesthouse, mother-in-law suite, an extra bedroom, garage, or parking space. If you go on vacation, consider renting out your home while you’re gone. Renting out your space is a great way to make a little extra money that can be added to your mortgage payment.
You can use platforms like VRBO.com to help you find renters and earn some extra money.
Accelerated Mortgage Payoff Calculator
Want to see how fast you can pay off your mortgage? Use this mortgage payoff calculator to get an idea of how long it will take you to pay off your mortgage early. Just enter information about your mortgage loan and how much extra you plan to pay toward your principal balance.
Is It A Good Idea To Pay Off Your Mortgage Early?
I know I gave you a lot of tips to pay off your mortgage quicker, but is it really a good idea to pay off your mortgage early? Sometimes, it’s NOT the best to pay off your mortgage early. Logically speaking, you wouldn’t want to pay off your mortgage if your money could be working harder for you somewhere else.
For example, if you have any debt that has a higher interest rate than the interest on your mortgage, your priority should be to pay off that debt—not to pay off your mortgage. Once you get rid of those higher interest debts, then you can consider paying off your mortgage early.
Also, if you could have a higher return on your money by investing it, instead of paying off your mortgage, it makes more financial sense to not pay off your mortgage.
Here’s some food for thought, some of the richest people in the world choose to have a mortgage. Jay-Z and Beyoncé financed their $88M mansion ($52.8M mortgage); billionaire Daryl Katz has almost a $50M mortgage on his mansion; and billionaire Mark Zuckerburgh financed his $5.95M home.
Ask yourself, “Why would these billionaires want a loan when they can easily buy their properties outright?” The answer is, there’s no sense in tying up your own money when you can use that money for more profitable things.
Let’s be clear, I’m not saying to not pay off your mortgage early and put your cash in the bank (or worse…spend it). I’m saying it does not make sense to pay off your mortgage early if you can get a higher return on your money doing something else—like investing.
Should You Pay Off Mortgage Early Or Invest?
It’s natural to want to pay off your mortgage early, but now you might be struggling with deciding should you pay off your mortgage early or should you invest? The answer certainly isn’t black and white, and it really depends on your personality and your current financial situation.
For example, I have a mortgage on my primary residence that I don’t want to pay off early. You may wonder “why?” The answer is because the interest rate on my mortgage is very low (under 4%), and I can make my money work better for me by putting all my extra cash towards investments instead.
With mortgage interest rates at a historic low, the amount of money you save on interest when you pay off your mortgage early will probably not exceed what you would earn if you were to invest your money somewhere else.
On the other hand, sometimes it’s not about the return on other investments and more about peace of mind or freeing up cash flow for other opportunities.
So here are some things you should look at when deciding if you should pay off your mortgage early or invest:
1. What Will You Do With That Money If You DON’T Pay Off Your Mortgage Early?
You know yourself better than anyone. Be realistic about what you’re likely to do with that money if you don’t use it to pay off your mortgage early. Will you actually use it to invest in something with a higher return? Or will you go shopping with that extra money?
If you struggle with keeping money in the bank, and have poor money habits, it’s better that you use that money to pay off your mortgage early than to spend it.
Making extra mortgage payments will “force” you to save because it helps you build equity in your home faster. And if you’re someone who’s money burns a hole in their pocket, having your money tied up in an asset that’s less liquid will make it harder for you to blow that money.
2. Do You Have An Emergency Fund?
Having an emergency fund will make sure you can still cover your bills if you fall on hard financial times. You should have between 3-6 months worth of living expenses in your emergency fund. If you don’t have a fully-funded emergency fund, I would not recommend paying off your mortgage early.
Your home is considered a non-liquid asset because it can take months (or even years) to sell the property and get access to the cash. Since an emergency can happen at any time, it’s very important to have quick access to your money.
Therefore, I recommend you open a high yield savings account to an online bank like is CIT Bank to store your emergency fund. CIT Bank is a good online bank to try because it:
- offers competitive interest rates (one of the nation’s top rates),
- has no monthly maintenance fees, and
- you only need $100 to open an account.
They offer competitive interest rates, has no monthly maintenance fees, and no minimum balance requirement after $100 to open. Also, their checking account has free ATMs worldwide.
If you tie up all your money into your home, you risk having to borrow money at a very high-interest rate in the event of an emergency. So make sure you have a fully-funded emergency fund first before you pay off your mortgage early.
- Related Article: How To Build An Emergency Fund
3. How Much Is Peace Of Mind Worth To You?
Sometimes, peace of mind is worth more than any amount of money in the world. Paying off your mortgage early can provide a sigh of relief and allow you to sleep better at night. You will feel better about your financial situation knowing that you no longer have such a big financial burden on your back.
So ask yourself, how much do you value peace of mind. Sometimes it’s less about the bottom line and more about peace of mind.
Personally, I plan to pay off my mortgage before retirement because I want to have that peace of mind — but that’s not my financial priority right now. Since I’m fairly young, I’m choosing to invest my money and have it work harder for me because I have time on my side.
However, if you’re closer to retirement age, I would lean closer to paying off your mortgage early rather than investing. It might not always make financial sense, but it offers peace of mind and will allow for more cash flow in retirement.
Although I personally decided not to pay off my mortgage early, I can see why others strive to accomplish this goal. It just feels good to know you don’t owe debt to anyone, and it makes your monthly obligations lower. Hopefully, by implementing these strategies and using these tips to pay off your mortgage early, you will be able to pay off your mortgage in no time.
- How I Use My Monthly and Yearly Household Budget Spreadsheet
- 3 Easy Ways To Cut Household Expenses
- Reduce Housing Expenses: How To Get Out Your Current Living Situation
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