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How to Pay Off Your Mortgage Early

There are a number of strategies you can follow to pay off your mortgage faster. By refinancing or making extra quarterly payments, you can shave months, or even years, off your pay-off date.

Eric Rosenberg Eric Rosenberg Updated October 30, 2020

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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:

  1. Refinance your mortgage
  2. Make bi-weekly payments
  3. Make extra payments quarterly
  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

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.

Good to know: With most mortgages, your interest accumulates a little bit every day. When you make a monthly payment, your interest is paid off first, and any additional payment lowers the principal balance. When you pay bi-weekly, your interest doesn’t accumulate as much, so you can pay off the mortgage faster. It also leads to an extra payment every year, as there are 26 bi-weekly payments every year compared to 12 monthly payments.

Here’s an example using the same $200,000, 30-year fixed mortgage above at 3.3% APR.

Regular paymentsBi-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.

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

3. Make extra payments quarterly

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.

Regular paymentsExtra $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.

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.

4. Put more towards your down payment

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.

Tip: A bigger down payment can help you save in more than one way. If you put down at least 20%, you can avoid private mortgage insurance (PMI).

5. Recast your mortgage

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.

6. Make lump-sum payments toward mortgage principal

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.

7. Rent out extra space in your house

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:

  • Renting out an extra room
  • Turning an accessory dwelling unit (ADU) into an Airbnb
  • Renting out space in your garage for storage
  • Renting out a parking spot
  • Renting your pool or backyard out to someone for an event

8. Invest

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.

For example: Let’s say you have $10,000 in extra cash that you want to put toward your mortgage principal. You have five years left on your mortgage with an original loan amount of $200,000, and you put it toward your loan which carries a 4% interest rate. Doing this could save you close to $2,000 in interest and help you pay off your mortgage faster.

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.

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 out if refinancing is right for you

  • Actual rates from multiple lenders – In 3 minutes, get actual prequalified rates without impacting your credit score.
  • Smart technology – We streamline the questions you need to answer and automate the document upload process.
  • End-to-end experience – Complete the entire origination process from rate comparison up to closing, all on Credible.

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About the author
Eric Rosenberg
Eric Rosenberg

Eric Rosenberg is a Credible expert on personal finance. His work has been featured at Business Insider, Investopedia, The Balance, The Huffington Post, MSN Money, Yahoo Finance, Mint.com and more.

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