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Home Buying

How to Pay Off Your Mortgage Early

So you’re eager to pay off your mortgage early and join the nearly 40% of American homeowners who actually own their home outright.1 Can you imagine that?

When the bank doesn’t own your house and you step onto your lawn, the grass feels different under your feet. That’s freedom. And paying off your mortgage early lets you supercharge your retirement savings.

But the problem is you’re currently stuck dragging around that ball and chain called a mortgage—just like most homeowners. How can you pay off your mortgage early?

Don’t worry. We’ll show you how to pay off your mortgage faster so you can finally join the ranks of debt-free homeowners. Let’s get started.

4 Ways to Pay Off Your Mortgage Early

Okay, you probably already know that every dollar you add to your mortgage payment puts a bigger dent in your principal balance. And that means if you add just one extra payment per year, you’ll knock years off the term of your mortgage—plus save thousands of dollars in interest.

To get serious about paying off your mortgage faster, here are some ideas to help:

1. Make Extra House Payments

Let’s say you have a $220,000, 30-year mortgage with a 4% interest rate. Our mortgage payoff calculator can show you how making an extra house payment ($1,050) every quarter will get your mortgage paid off 11 years early and save you more than $65,000 in interest—cha-ching!

Use the mortgage payoff calculator and see how fast you can pay off your home!

But before you start making extra payments, let’s go over some ground rules:

  • Check with your mortgage company first. Some companies only accept extra payments at specific times or may charge prepayment penalties.
  • Include a note on your extra payment that you want it applied to the principal balance—not to the following month’s payment.
  • Don’t shell out your hard-earned cash for a fancy-schmancy mortgage accelerator program. You can accomplish the same goal all by yourself.

What does paying your mortgage biweekly do?

Some mortgage lenders allow you to sign up for biweekly mortgage payments. This means you can make half of your mortgage payment every two weeks. That results in 26 half-payments, which equals 13 full monthly payments each year. Based on our example above, that extra payment can knock four years off a 30-year mortgage and save you over $25,000 in interest.

Are biweekly mortgage payments a good idea?

A biweekly payment plan can be a good idea—but never pay extra fees to sign up for one. Remember, there’s nothing magical about them. The real reason it helps pay off your mortgage faster is because your extra payments add up to 13 monthly payments per year instead of the standard 12. So if your lender only lets you pay biweekly by charging you a fee, don’t sign up.

2. Bring Your Lunch to Work

Sure, bringing a peanut butter and jelly sandwich to work every day isn’t as fun as going to a restaurant with your coworkers. But trading lunch out for eating in can make you a lean, mean, mortgage-free machine.

Suppose packing your lunch frees up $100 to use toward your mortgage every month. Based on our example above of the $220,000 loan, that $100 in lunch money will help you pay off your mortgage almost five years ahead of schedule and save you over $27,000 in interest!

Can’t quite spare a whole $100 from your food budget? No worries. Even small sacrifices can go a long way to help pay off your mortgage early. Put Andrew Jackson to work for you by adding just $20 to your mortgage payment each month. Based on our example, you’ll pay your mortgage off a year early, saving over $6,000 in the process.

3. Refinance—Or Pretend You Did

Another way to pay off your mortgage early is to trade it in for a better loan with a lower interest rate and a shorter term—like a 15-year fixed-rate mortgage. Let’s see how this would impact our earlier example. If you keep the 30-year mortgage, you’ll pay more than $158,000 in total interest over the life of the loan. But if you switch to a 15-year mortgage with a lower interest rate, you’ll save almost $100,000—and you’ll pay off your home in half the time!

Sure, a 15-year mortgage will come with a bigger monthly payment. But if it fits within your housing budget, it’ll totally be worth it! And hey, maybe you’ve boosted your income or lowered your cost of living since you first took out your mortgage—then you’d definitely be able to handle the bigger payment.

You can refinance a longer-term mortgage into a 15-year loan. Or if you already have a low interest rate, save on the closing costs of a refinance and simply pay on your 30-year mortgage like it’s a 15-year mortgage. What if you already have a 15-year mortgage? If you can swing it, imagine increasing your payments to pay it off in 10 years!

4. Downsize

Downsizing your house could be a drastic step. But if you’re determined to crush your mortgage fast, consider selling your larger home and using the profits to buy a smaller, less expensive house.

With the profits from selling your bigger house, you may be able to pay 100% cash for your new home. But even if you have to get a small mortgage, you’ve still succeeded in reducing your debt. Now your goal is to get rid of that debt as quickly as possible. The smaller the balance, the quicker you can make it happen.

Don’t buy more house than you can afford.

Let’s say you go the downsizing route. Before shopping for your next home, first make sure all your ducks are in a row and know how much house you can actually afford. This handy checklist is a great place to start. If you can’t say yes to all six questions, it’s best to put your home purchase on hold.

  • Am I debt-free with 3–6 months of expenses in an emergency fund?
  • Can I make at least a 10–20% down payment? (Or 5–10% for new home buyers.)
  • Do I have enough cash to cover closing costs and moving expenses?
  • Is the house payment 25% or less of my monthly take-home pay?
  • Can I afford to take out a 15-year fixed-rate loan?
  • Can I afford ongoing maintenance and utilities for this home?

If you need help figuring out what your new monthly mortgage payments will look like, try our mortgage calculator.

Consult a pro to find the right home.

For help finding houses that fit your budget, or if you’re ready to sell your home, consult an experienced real estate agent whose advice will save you time and money.

A buyer’s agent can help you navigate through the home-buying process. In some cases, they may even be able to help you find a house before it hits the market, giving you a competitive edge. And when it comes to making an offer, your agent will negotiate on your behalf—so that you don’t pay a penny more than you have to.

You can find a trustworthy real estate agent in your area through our nationwide Endorsed Local Providers (ELP) network. RamseyTrusted agents understand how important it is to buy a home you can afford. They won’t pressure you to consider homes that will bust your budget.

Maximize your down payment.

The best way to buy a home is with 100% down. Paying cash for a home may sound weird, but imagine all the fun you’d have without a mortgage payment weighing you down.

If you can’t postpone the purchase until you can pay cash, plan to make a down payment of 10–20% of the home price (5–10% if you’re a first-time home buyer). Of course, 20% or more is better because then you’ll avoid paying private mortgage insurance (PMI).

PMI typically costs 0.5–1% of the loan amount annually. For example, on a $250,000 mortgage, PMI will cost you $1,250–2,500 a year. Why give the bank extra money each month if it doesn’t pay your mortgage down faster?

Keep in mind that the more cash you put down on the front end, the less money you’ll need to finance. That adds up to a lower mortgage payment each month, making it easier to pay off your house early.

Ready to Refinance Your Mortgage?

If you want to refinance to a mortgage you can pay off fast, talk to our friends at Churchill Mortgage. The home loan specialists at Churchill Mortgage show you the true cost—and savings—of each loan option. They coach you to make the best decision based on your budget and goals.

Connect with a mortgage expert you can trust!

Frequently Asked Questions

Will paying off my mortgage affect my taxes?

If you claim the mortgage interest tax deduction, paying off your mortgage early will mean a higher tax bill. But it’s worth it! The deduction for mortgage interest isn’t dollar-for-dollar, so that means you’ll pay more in interest by keeping your mortgage than you’ll save in taxes.

You can deduct interest on up to a $750,000 home mortgage.2 So let’s say you pay $10,000 a year in interest, and you fall into the 25% tax bracket. You’ll get a $2,500 tax deduction. Why would you spend $10,000 to get a $2,500 deduction?

Does paying off my mortgage affect my homeowners insurance?

Whether your home is paid off or you owe money on it, your homeowners insurance policy will cost the same. By law, you aren’t required to have homeowners insurance if your home is paid off, but not having insurance is a horrible idea. Your home is your largest asset, and you want to make sure it’s protected.

Is it wise to pay off my mortgage with my 401(k)?

You might have a pile of cash sitting in your 401(k), but it’s never a good idea to use your retirement money to pay off your house. First off, you’re going to need that money if you ever plan to retire. And second, you’ll be hit by taxes (at your withholding level) and a 10% early withdrawal penalty. So you’ll lose 30% or more of your money before you can even put it toward your mortgage.

Ramsey Solutions

About the author

Ramsey Solutions

Ramsey Solutions has been committed to helping people regain control of their money, build wealth, grow their leadership skills, and enhance their lives through personal development since 1992. Millions of people have used our financial advice through 22 books (including 12 national bestsellers) published by Ramsey Press, as well as two syndicated radio shows and 10 podcasts, which have over 17 million weekly listeners. Learn More.

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