How to Pay Off Your Mortgage Early

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Brick House with Green Bushes

Many people want to pay off the mortgage on their house early. They want the flexibility to have less money going out the door every month. They want to be debt-free and not have to worry about living paycheck to paycheck. Is this you? Maybe your skeptical and don’t think it is that big of a deal to pay it off faster. Well, let’s start with an example. Let’s say you buy a house and get a 30 year mortgage for $200,000 at 3.8%. If you kept the loan to the end of the term you would have paid $135,489.29 in interest. This means the total amount you paid for the house would be $335,489.29.

If you bought a house and got a 15 year mortgage instead at 3.11%, you would pay only $50,518.36 in interest. Bringing your new total to $250,518.36. This is a difference of $84,970.93! I don’t know about you but I am interested in saving that kind of money.

Create a Financial Gameplan

Track your expenses on a monthly basis and determine what your surplus is. That is, after all your bills are paid and investments are funded, how much extra money do you have left over each month.

Increase Your Monthly Payment

Calculate what a 15 year payment would be by going to Then if you have enough surplus, begin paying that payment toward your mortgage each month. This way you avoid all of the fees and hassle that would be involved with refinancing.

Decrease Your Expenses

If you have little-to-no surplus, go through you financial gameplan (budget) line by line. Ask yourself, ‘how can I spend less in this category?’ By doing this you could free up extra cash to pay down your mortgage faster.

Refinance to a 15 Year Fixed

If you currently have a 30 year mortgage at an interest rate above 5%, consider refinancing to a 15 year fixed. The current average national rate is 3.11% on a 15 year (as of May of 2012). This could save you a few thousand dollars a year in interest just by making this move.

Make One Extra Payment Per Year

If you want to wear the minimum amount of flair, you can make one extra payment per year. In the 30 year scenario above, you would pay your home off 4 years sooner.

Do you have a plan to pay down your mortgage early? What is it?

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6 responses to “How to Pay Off Your Mortgage Early”

  1. Deacon Hayes says:

    Thanks, Daryl. I’m glad you like it.

  2. Patty says:

    Right now, I am focused on paying off 3 of my student loans (highest interest debt) and my car. Once those are out of the way, I will have freed up enough each month to apply an additional $400-500/mo towards the mortgage.

    • WellKeptWallet says:

      That is the right approach. Paying down all of your non-mortgage debt first will give you a sense of accomplishment and motivation. I paid our off ours by paying the debts off smallest to largest and it really gave us a sense that we were making progress and actually getting somewhere. I wish you the best on paying off all your debts!

  3. Kelly O'Connor says:

    Here’s a couple of questions for you: 1) Does the bank have your best interests at heart? I’m confident you said “No”, and of course you’re right for doing so. 2) So, if the bank does not have your best interests at heart, then why do they give you an incentive to go with a shorter term? If you say, “because it’s less risky” you’re mistaken. If you say, “because they make FAR more money on the 15 year than the 30 year” then you are correct.

    “But look at the interest savings between the two Kelly” (which is what is stated above). You’re leaving two very critical pieces out of the picture: 1) inflation and how the bank profits from it and 2) the interest you lose for self-financing by accelerating your payment.

  4. S.Wilk says:

    If I want to buy a house with cash that is listed for $200,000.00, how much should I negotiate to pay in cash? I’ve been saving for while and this year I’m paying off all my debt.

    How should I negotiate if I want a brand new house built the way I want it, but I still want to pay cash for it? What steps should I take?

    • Deacon Hayes says:

      When buying a brand new house, you may not get as good of deal when paying cash. That is because the costs to build a house can be more than if you were able to negotiate with someone who is motivated to give you a discount because they need to get rid of house for whatever reason. That being said, the fact that you have cash can make it more attractive for a builder because they know that they will get paid. So, I would just approach the builder and let them know that you plan to pay cash and ask them what deal they can give you for doing so. Sometimes they will throw in upgrades for free, like granite counter tops, stainless steel appliances, etc. But if I were asking, I would want at least 10% off the asking price.

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