SOME CARD INFO MAY BE OUTDATED
This page includes information about these cards, currently unavailable on NerdWallet. The information has been collected by NerdWallet and has not been provided or reviewed by the card issuer.
There are benefits to paying off your mortgage early. For one, you’ll save money by making fewer interest payments. You’ll also build home equity faster. What’s more, once you’ve paid off your mortgage you’ll free up some of your paycheck by eliminating a major monthly expense.
Still, while paying off your mortgage early can save you money in the long run, you’ll pay more in the short term. Plus, it means having to balance other aspects of your financial life more carefully, such as paying off high-interest debt, saving for retirement and other major goals, and being prepared for emergencies.
The good news: There are multiple early mortgage payoff options to consider based on your financial situation and lifestyle. Here are some of the most common strategies.
Refinance your mortgage
If mortgage rates have dropped since you initially got your loan, refinancing is often a smart move to lower your monthly payment. You could also refinance to a shorter term, cutting down the repayment timeline. By paying off the loan faster, you’ll eliminate years of interest payments. While you could pay off your loan sooner without refinancing by simply making extra (or larger) payments, you may be missing out on a lower interest rate.
Bear in mind, however, that refinancing comes with closing costs just like the initial mortgage. You can expect to pay between 2% and 6% of the total loan amount in closing costs, so the overall savings will have to outweigh these fees. You’ll also have to calculate how this additional expense affects the new planned payoff timeline.
🤓 Nerdy Tip
Depending on your loan type and state laws, paying off your existing mortgage early might subject you to a prepayment penalty. Review your loan agreement to see if it contains a prepayment penalty clause. Make larger monthly mortgage payments
If refinancing doesn’t make sense, paying more toward your existing mortgage could be a good option. If you decide to go this route, make sure you apply the extra money toward your mortgage principal — not the interest. Ask your mortgage servicer (you can find the contact information on your monthly statement) how to do it, and watch your monthly statements to be sure the money is credited correctly.
Pick an amount big enough to make a difference but not so big that it crimps your budget.
Make one extra payment each year
One bonus payment could make a big difference over time. You can do this by making one extra lump-sum payment, or by increasing each monthly payment by one-twelfth. By the year’s end, you’ll have made an extra payment — or 13 total payments.
🤓 Nerdy Tip
If you plan to make extra principal payments, it’s most advantageous to start early in your loan term. The earlier you chip away at your principal, the more you’ll see in total interest savings. Switch to biweekly mortgage payments
Rather than saving up to make one extra payment, you can also pay down your mortgage faster by switching to biweekly payments. This would mean paying half the mortgage payment every two weeks instead of a lump sum once a month. This way you'll make 26 half payments over the course of the year, amounting to 13 full payments — equivalent to an extra month's mortgage payment.
Use gifts, bonuses and windfalls
If you don't want the bigger immediate financial commitment that comes with a 15-year mortgage, or adding a large sum to your monthly payment, look for cash that dribbles in here and there.
Even adding just $50 to every monthly payment can deliver interest savings in the long run. Rounding up your monthly payment is also an effective strategy and may be even more manageable. Dedicate overtime pay, bonuses or every other bonus to building equity. Cash gifts? Ditto.
If you’re in a position to inherit money, use at least part of it to pay down the mortgage. Your mortgage servicer can tell you how to add dribs and drabs or a big windfall to your equity. Again, make certain the money goes toward the principal, not interest.
NerdWallet writer Robin Rothstein contributed to this story.
Frequently Asked Questions
How do I pay off a 30-year mortgage in 10 years?
Paying off a 30-year mortgage in just 10 years would require aggressive payments. If you can afford to do this, it will save you a huge amount in interest payments.
For example, let’s say you got a $400,000 mortgage today with an interest rate of 6%, and your monthly payments are $2,398. If you were to increase your monthly payments by about $2,043 to $4,441, you’d shave 20 years off of your mortgage and pay it off by 2036. This would save you a whopping $330,454 in interest over the life of the loan.
What happens if I pay an extra $100 a month on my mortgage?
Adding an extra $100 a month to your mortgage payment could help you pay off your loan faster and result in interest savings. This is equivalent to an extra payment of $1,200 per year, or $12,000 over 10 years.
For example, let’s say you’ve got a 30-year mortgage of $400,000 with an interest rate of 6%. Adding an extra $100 per month could allow you to shave three years off your loan term, saving about $55,750 in interest.
What is the smartest way to pay off your mortgage?
The following steps can help you determine your best option for paying off your mortgage early:
- Check today’s refinance rates. If you can get a lower mortgage rate, refinancing could help you shift more of your monthly payment towards the principal balance.
- Determine how much more you can afford to pay towards your mortgage each month to reach your payoff goal.
- Consider switching from monthly to bi-monthly payments. This will add up to the equivalent of one extra month’s payment.
- Apply any additional income you earn throughout the year (such as bonuses or gifts) towards your mortgage.
Explore more on
Article sources
NerdWallet writers are subject matter authorities who use primary,
trustworthy sources to inform their work, including peer-reviewed
studies, government websites, academic research and interviews with
industry experts. All content is fact-checked for accuracy, timeliness
and relevance. You can learn more about NerdWallet's high
standards for journalism by reading our
editorial guidelines.
