How to Pay Off Your Mortgage Early
When you own your home free and clear, you can save, invest and achieve other financial goals. Understanding the many ways to pay off a mortgage early can help you take meaningful steps toward reaching that goal.
If your lender does not charge a prepayment penalty and you want to pay off your 30-year mortgage in 10 years or less, here are some good starting points:
Add a little ore to your monthly payment. Early in the mortgage, most of your payment goes toward interest. Any extra payments chip away at your principal. Say you have a $100,000 30-year fixed-rate mortgage a 4.5%, and you add $100 to your usual $500 monthly payment. You'd pay off your mortgage eight and a half years early and save more than $26,300 in interest.
Pay more often. Making half your monthly payment every two weeks results in one extra payment each year. If you did this with the same 30-year fixed-rate mortgage, you would take off five years from your loan term and save roughly $14,500 in interest.
Do not fritter away small windfalls. Every time you receive a work bonus, tax refund or cash gift, put it toward your mortgage instead of something else. How much you can save in time and interest varies, but even a few hundred dollars now and then adds up over several years.
Cut expenses and apply the savings. If your budget allows it, you can turn minor changes in your spending habits into big savings. Some options: Switch to a cheaper cellphone plan, cut the cable cord or skip a vacation. Then use whatever cash you save to make extra payments on your loan.