Blue home with big front porch

Paying off your mortgage before the loan is up might feel light years away, but it’s doable if you plan your finances right.If you pay off your mortgage early, you could save a lot of money on interest. Once you own your home, you can put those mortgage payments towards other important accounts, like saving for retirement, a college education for your child, or an emergency.

How to pay off your mortgage early

If you’re ready to get a jump-start on paying your mortgage off sooner than the loan terms say you should, here are a few ways to get started.

1. Refinance to a shorter-term loan

If you have a 30-year loan, you can refinance to a 10- or 15-year loan. While your monthly payments might be bigger than before, you’ll pay off the loan in a fraction of the time.

Let’s say you got a 30-year fixed-rate mortgage for $200,000 at 4.5 percent. Five years later, you refinance into a 15-year loan at 4 percent. This pays off the mortgage 10 years earlier and saves you more than $60,000.

Shorter-term loans tend to have lower interest rates than 30-year loans. Unless you can secure a loan lower than the old rater, you can skip refinancing.

2. Pay a little more every month

While any little extra helps, there’s a handy way to pay an extra month’s worth.

Divide your monthly payments — principal and interest — by 12 then add that amount to your monthly payment for a year. You’ll make the equivalent of 13 payments in 12 months.

Let’s use that previous payment example. Say you have a $200,000 mortgage at 4.5 percent. After five years of making the minimum payments, you add an extra 1/12 of a month’s principal and interest to each monthly payment. This pays off your mortgage three years and three months earlier and saves more than $18,000 interest.

Before you make extra payments, call your mortgage servicer to find out exactly what you need to ensure your extra payments go towards the loan. Let them know you want to pay more and ask the best ways to do that.

Some servicers may need a note on the notation line of the check about how to apply the extra money. Always check the next statement to make sure your payment was applied.

3. Make one extra mortgage payment each year

Instead of paying a little more each month, make one extra monthly payment each year. One way to do this is to save 1/12 of a payment every month, and then make an extra payment after every 12 months.

Let’s say you do this starting the first month after getting a 30-year mortgage for $200,000 at 4.5 percent. That would save more than $27,000 interest, and you would pay off the mortgage four years and three months earlier.

4. Every little bit you can find

If you get any extra money that’s more than your budget says you bring in, put it towards your mortgage. Some examples of where you can get extra cash:

  • A bonus at work
  • Tax refund
  • An inheritance
  • Money from your side-hustle
  • A raise

Let’s say you got a 30-year fixed-rate mortgage for $200,000 at 4.5 percent. Then, five years later, you pay an extra $10,000 in a lump sum. This pays off the mortgage two years and four months earlier and saves more than $19,000 in interest.

The downside to this is that it’s hard to predict the mortgage payoff date. And be mindful of putting so much extra cash toward the mortgage. If it comes out of other obligations, like saving for an emergency or paying off credit cards, it’s not worth it.

Are you ready to pay your mortgage off early?

A 30-year loan is a long time to be paying back money. If you have the financial means to pay your mortgage off sooner, you might want to consider it. You’ll be out of debt and own your home sooner.