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When you sign up for a mortgage, you are essentially committing to years of monthly payments in exchange for owning a home. By paying off your mortgage early, however, you can likely save a small fortune on interest and rid yourself of some financial stress.
If you’re looking to pay off your mortgage faster, here’s what you need to know.
Can you pay off your mortgage early?
Yes, you can pay off your mortgage early. In most cases, you can pay extra to lower your balance faster. Whether you want to pay an extra $20 every month or a big lump payment one-time, you have multiple strategies to pay off a mortgage faster.
However, some lenders do charge extra should you decide to pay early. Prepayment penalties are only allowed in the first three years and don’t exceed more than 3% of the loan balance.
8 ways to pay off your mortgage early
Whether you’re more excited about saving on interest or ending your mortgage payments early, these eight strategies could be perfect in helping you reach your goal:
- Refinance your mortgage
- Make bi-weekly payments
- Make extra payments quarterly
- Put more towards your down payment
- Recast your mortgage
- Make lump-sum payments toward mortgage principal
- Rent out extra space in your house
- Invest
1. Refinance your mortgage
When you use a mortgage refinance to shorten a loan’s term, you can chop years off of your repayment period while saving a bundle on interest.
Here’s an example of how much you may be able to save by refinancing a $200,000, 30-year fixed mortgage into a 15-year fixed loan with a lower interest rate:
| 30-year (at 3.30% APR) | 15-year (at 2.77% APR) | |
| Monthly payment | $876 | $1,359 |
| Total mortgage cost | $315,328 | $244,647 |
| Savings | - | $70,681 |
Despite a higher monthly payment, you would save more than $70,000 over the life of the loan, assuming you pay the minimum every month. Refinancing isn’t free, so weigh in the costs to refinance and whether you want to refinance to an adjustable-rate mortgage or fixed-rate loan.
Credible can help you easily find the latest mortgage refinance rates. You can compare multiple rates from our partner lenders by using the table below.
2. Make bi-weekly payments
With a typical mortgage, you’ll make a payment once every month for the life of the loan. Some lenders and services allow you to convert to making bi-weekly payments, which can accelerate your payoff by taking advantage of how interest is calculated and paid on a mortgage.
Here’s an example using the same $200,000, 30-year fixed mortgage above at 3.3% APR. With this payoff method, the loan could be paid off around three years early with a savings of over $16,000. Keep Reading: When to Refinance a Mortgage If you don’t have the funds to commit to additional payments every month, you can always pay extra when you can afford to. Let’s say you can afford to pay an extra $100 every third month. That could lead to big savings over time. With an extra $100 per quarter, $8,000 in interest costs fall off of a $200,000 mortgage and it will be paid off about two years ahead of schedule. If you’re looking to buy a new home or have a big pile of cash available when refinancing, you could lower your monthly payment and total costs by simply putting more down toward your home. Every dollar you put down is a dollar you don’t have to pay back. There’s also no interest charged on money you don’t borrow. That’s a long-term win for your finances if you can afford it. Recasting is a way to refresh your mortgage without a full refinance. When you recast your mortgage, you make a large, one-time payment toward your loan and the lender creates a new amortization schedule for your loan’s payments. The new payment schedule will have a lower monthly payment, but that large lump sum you paid in also lowers how much interest is accrued each month. This isn’t all that common, but it’s a good option for some borrowers. Check with your lender to find out if it’s an option with your loan. In an example above, we looked at what would happen with an extra $100 payment every three months. You don’t have to stick to a regular schedule for extra payments, however. Any month you have additional funds to put toward your loan, you can make an extra principal payment to help pay off your mortgage early and save on interest charges along the way. If you want to make extra payments but don’t know where to find the money in your budget, consider putting your house to work. Some examples of what you could do include: You might be better off investing extra cash rather than using it to pay off your loan. That depends on your personal financial situation, loan interest rate, and the expected rate of return from your investment. On the other hand, you could invest the money into a low-cost index fund, such as one representing the S&P 500, which has had an annualized rate of return of 8.4% since the start of 2008, according to NASDAQ. Assuming that rate holds steady, and not factoring in inflation or taxes, you could end up growing your cash to nearly $15,000, or about a $5,000 return. Credible is not an investment advisor, so be sure to speak with an investment specialist beforehand to see if the numbers work for you. With larger amounts, the impact is even bigger. But keep in mind that your mortgage costs are locked in no matter what, and the stock market might not perform as well as you planned. Learn More: Pay Off Mortgage or Invest: What Should You Do? If you think refinancing is the right move, Credible makes it easy. You can compare multiple lenders and see prequalified rates in as little as three minutes without leaving our platform. Find My Refi Rate
Regular payments Bi-weekly payments
Payment amount $876 $438
Total interest cost $115,328 $98,607
Savings - $16,721
Note: All numbers here are for demonstrative purposes only.
3. Make extra payments quarterly
Regular payments Extra $100 every quarter
Payment amount $876 $976 every three months
Total mortgage cost $115,328 $107,402
Savings - $7,926
Note: All numbers here are for demonstrative purposes only.
4. Put more towards your down payment
5. Recast your mortgage
6. Make lump-sum payments toward mortgage principal
7. Rent out extra space in your house
8. Invest
Checking rates will not affect your credit