How To Pay Off A Mortgage Early

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Once you’ve asked if you should pay off your mortgage early, it is time to ask, how can I pay off the mortgage early? This is the fun part.

Let me start off by saying that you shouldn’t need to pay someone or buy a product to help you pay off the house early. Instead, simply send the bank extra payments to add to your principal whenever you have money to pay towards the debt.

[pullquote]Make Sure Your Extra Payments Are Being Applied to the Principal[/pullquote]

Banks typically do one of two things with extra payments. They will either use your payment to apply to the principal (the amount you have left to pay them), or they will use it to apply to future payments.

You want to be sure your payments are applied to the principal. This is the only way to shorten the term of your mortgage and to save you money on interest.

Call your bank or financial institution and ask them what you need to do to make extra principal payments. Typically, you would write a note on the check – apply to principal or principal prepayment. Always be sure to follow up and confirm your payments have been recorded properly. By default, some banks will apply your extra money towards future payments because it is more lucrative for them.

5 Tips to Help You Pay Off A Mortgage Early

Discover Lost Money: Budget

If you are out of the budgeting habit, you need to make a budget. When you set up and stick to a budget, you will stop some of your money leaks which will allow you the opportunity to have extra money to put towards your house payment.

Set An Aggressive and Measurable Goal

I find that people are always more motivated to accomplish something they find challenging. When it comes to running, I’ve always found that when I have an aggressive goal (like a full or half marathon), my training is more consistent and productive. When I don’t have a set reason to run, the running regiment slides.

[pullquote]Mark an actual date on the calendar when you plan to send in your last mortgage payment and work aggressively towards that goal.[/pullquote]

Spend Money Before You Earn It

You should be budgeting for unexpected income. We are often exposed to unexpected sources of income, but when it arrives, we do little to capitalize on those opportunities. Decide that every dollar or every percentage of extra money that comes to you will be applied towards your home.

Add a Budget Line Item

If you don’t make your mortgage repayment a priority, it will not happen. In your budget, under your mortgage payment, open up a place for extra mortgage payment. Put it in your budget so that your mortgage repayment plan won’t take a back seat to other spending whims.

Intentionally Be Financially Unbalanced For a Short Period of Time

The closer you get to paying off the mortgage, the more you’ll consider doing something drastic. Cancel a vacation for a year. Scale back your retirement contributions for a few months. Sometimes when you get really close, you’ll just want to dive for the finish line. That’s fine. You can always easily get back on track with a balanced financial plan once the house is paid off.

Some folks might try to help you pay off your mortgage using tips and tricks – like making biweekly mortgage payments. At the end of the day, the fastest way to pay off the mortgage is by finding, making, and applying more money to the principal.  You can use a mortgage repayment calculator to help you calculate the money you can save.

What strategies do you use to pay off the mortgage early? How do you find extra money for house payments?


  1. says

    Great tips Craig! I bought my first house last fall and already can’t wait to have it paid off (15-year-fixed). The tip about adding the line-item in the budget is my favorite. We do that monthly and it’s made us think about it as mandatory rather then “maybe if there’s cash left.”

  2. Panda Mike says

    I actually keep my payment higher to simulate a higher interest rate that I currently pay. When I have renewed my mortgage, I kept my old payment (that was calculated with a much higher interest rate) instead of “liberating” the money I am “saving” with lower interest rate.

    If you always calculate your mortgage payment with a 5% interest rate (while you are paying 2%), you will end-up paying your mortgage much faster!

  3. says

    Great points all around – I love the point about making extra payments an actual budget line item. I know we’ve made an extra payment on our mortgage this year, but far too often when we mean to pay extra, it doesn’t happen. Adding it to the budget would definitely help.

  4. says

    One thing you have to watch out for is that some banks will reamortize your loan when you make extra principle payments. My bank did this to me. I set up the autopayment to include extra each month and then I noticed my payments kept going down every six months. They were automatically reducing the payments to reamortize back to 30 years. So, I cancelled the autopayment and started making my own payments with Bill Pay.

  5. says

    Until recently we were using the autopay feature through our lender with an extra $100 being applied to the principle each month. When we agreed on our budget for the month, the mortgage amount included the escrow and the additional principle. The $100 each month basically equals a full principle payment each year.

    I say recently, because we decided to take the $100 and increase the amount being saved for college (two kids). The plan is take this years pay increase (in any) and apply that back to the mortgage.

    • says

      Basically I suggest paying off as much as you can. If that is 3% or 30%. If you Google mortgage calculators you can play around with the numbers and see how much time and money you’ll save with your extra payments.

  6. Perry says

    refi $144,000 in Feb 2008 for 15 years, on track to pay the mortage off April 2013 (5 years 2 months), plus paid off both 2008 vehicles earlier this year. I agree on the budget line, we have our mortage company pull an amount equal to 3 house payments every month, so we know we have to have the money in the account. We are very frugal in most areas which is allowing us to make the progress we have.

  7. Brandon says

    Wow….You asked what God would want you to do! We need more God in everything these days…Thanks for that refreshing question…It lifted the wieght off my shoulders…With the jobs situation the way it is today I had to rethink my strategy and realized how important it is to get out of debt…Your suggestions affirmed my strategy…I just wanted to add that the more you can pay earlier in the loan the more you save…I get a thrill out of watching the principal drop on each monthly statement….Keep up the good advice!

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