mortgage

4 ways to pay off your mortgage early and calculate the savings

Refinance with a shorter-term mortgage
Refinance with a shorter-term mortgage | Aleksandar Nakic/Getty Images

Refinance with a shorter-term mortgage

You can pay off the mortgage in another 15 years by refinancing into a 15-year mortgage.

Let's say you got a 30-year, fixed-rate mortgage for $200,000 at 4.5 percent. Then, five years later, you can refinance into a 15-year loan at 4 percent. Doing so pays off the mortgage 10 years earlier and saves more than $60,000 (if you exclude closing costs on the refi).

Minimum payments only
Monthly principal and interest, years 1-5$1,013.37
Monthly principal and interest, after year 5$1,013.37
Years and months to pay off loan30 years
Interest rate4.5%
Total interest$164,813.42
Refinance to 15-year fixed
Monthly principal and interest, years 1-5$1,013.37
Monthly principal and interest, after year 5$1,345.45
Years and months to pay off loan20 years
Interest rate4%
Total interest$103,539.27
Your savings$61,274.15

Those shorter-term mortgages often carry interest rates a quarter of a percentage point to three-quarters of a percentage point lower than their 30-year counterparts, Tyson says.

Refinancing isn't quick or free. It requires filling out the application, providing documentation and having an appraiser visit. There are closing costs.

And even with a lower interest rate, that quicker payoff means higher monthly payments. And this method is a lot less flexible. If you decide that you don't have the extra money one month to put toward the mortgage, you're locked in anyway.

Unless the new interest rate is lower than the old rate, there's no point in refinancing, says Doelger.

Without a lower rate, you'll get all the same benefits (and none of the extra costs) by just increasing your payment a sufficient amount, he says.

SEARCH RATES: Shop today for a 15-year mortgage.

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