Buying a home is a major expense – and a major debt. It’s said it’s the biggest purchase you’ll make in your life.
A traditional mortgage loan is repaid over the course of 30 years, but today, some terms call for up to 40 years of repayment.
To some, three or four decades seem like an interminable amount of time to take to pay off a debt.
Quick Tip: Right now mortgage rates are very low, so if you are wanting to pay off your mortgage quicker, consider refinancing. Just click here to see how much you can save.
For those who aren’t looking to change the terms of their mortgage loan, such as refinancing to a lower interest rate or converting a 30-year loan to a 15-year loan, there are a few ways you can put a dent in the principal and lower the amount of interest paid in the following months and years.
While some folks claim that paying down the principal reduces the mortgage interest available to deduct on your federal tax return if you itemize, in the long run, you’ll still come out ahead. Take into consideration that your tax liability will likely increase incrementally if you’re already in the middle of paying off your mortgage.
Another argument against is that the extra money could be put into investments – but you’d have to make at least the same percentage return as your interest just to break even. Right now, that means playing the stock market or putting money into less-risky savings vehicles, such as CDs, which are barely paying 1% in some places. But don’t forget, these investments are taxable. Your mortgage interest can be used to reduce your tax burden.
If paying off your mortgage early is your aim, always ask if your lender allows prepayments, without penalty. You don’t want to pay toward the principal and get penalized for it. Also be sure your extra money is being put toward the principal, rather next month’s mortgage payment. That won’t reduce your interest payments.
Starting to pay off principle at any point during the term of the mortgage loan will help save you money, but start early on to make the most difference – the first half of the payments go toward interest. After the halfway point, the majority of your monthly payment goes to the principal.
Pain-Free Tips For Paying Off Your Mortgage Early!
Paul and Shirley have a 30 year fixed rate mortgage on a $200,000 loan. They are paying 5.5% APR and are motivated to pay that mortgage off early. I applaud their enthusiasm, but I also encourage them to examine their priorities before focusing on their mortgage debt. They should:
- Pay off all other debt. Why? Because getting rid of other debt will free up their cash flow to allow them to attack that mortgage with gusto.
- Save at least a six-month emergency fund. Why? Because emergencies WILL happen, and money tied up in their house cannot be easily accessed to pay for those emergencies.
- Be investing sufficiently for retirement. Why? Because they only have one shot at retirement. They should ask themselves this question, “If my retirement account was already on target, would I sacrifice it in order to pay my house off early?” Of course not, but neglecting their retirement account in order to pay their mortgage early is doing the same thing.
OK? Now, assuming Paul and Shirley have met these guidelines, here are five pain-free ways for them to pay off their mortgage early.
1. Make a payment every two weeks.
This approach is especially suited for those who are either paid weekly or bi-weekly because they can synchronize their mortgage payments to their pay schedule instead of the calendar. The strategy works because a payment every two weeks, in a year’s time, will total 26 payments, or the equivalent of 13 monthly payments– one extra payment per year. If Paul and Shirley choose this option, their 30-year mortgage will be gone in slightly less than 25 years.
Note: Many banks, because they are structured to process payments monthly, will not be able to accommodate the bi-weekly payment schedule. However, a diligent borrower can do this on his own by multiplying whatever he is paying now by 1.083 (or 13/12) in order to pay the equivalent of 13 payments a year.
2. Change their W-4 forms, get less refund, and pay extra on their mortgage.
Paul and Shirley, who are receiving a $3,000 refund from the IRS every year, could claim more exemptions on their W-4 forms in order to get a smaller refund and more take-home pay. If they were to plan for a $600 refund, they would have an extra $200 to add to their mortgage payment each month, lowering their payoff from 30 years to only 21 years.
3. Refinance and keep paying the same payment.
If Paul and Shirley could refinance their loan from 5.5% to 4.5%, and keep making the same payments, they would knock the mortgage out six years sooner.
4. Utilize pay raises.
Paul and Shirley’s current house payment is 25% of their take-home pay. If they continue to pay that same 25% as they receive future pay raises, they would be making incrementally bigger payments – a relatively pain-free strategy. Assuming these two get a 4% annual pay raise, this tactic would allow them to pay that 30-year mortgage off in slightly over 17 years.
Do all four!
What if Paul and Shirley decided to use all of our pain-free tips? It would look something like this:
- By changing their W-4 forms, their monthly payment would bump from $1135.61 to $1335.61.
- By paying bi-weekly, their equivalent monthly payment would become $1446.91 ($1335.61 x 1.08333).
- They will refinance to 4.5% with $1000 closing costs, and keep their payment the same ($1446.91).
- They will increase their payment by 25% of whatever ensuing pay raises they receive. We will assume pay raises of 4% annually.
Put it all together, and our happy couple will have paid their 30-year mortgage off in … drum roll, please … 12 years and 3 months!
We paid off our house in 3 years – see how in the video below!
Readers: Have you been trying to pay your mortgage early? What additional tips do you have?
Thank you for a simple and straightforward summary of some easy ways to pay off mortgage debt more quickly. With what is typically a large amount of principal and long terms, a little extra payment goes a long way!
i’ve always been a risk taker since i was a kid but this time i took a careless risk and lost a lot of money. I ended up having loads of mortgage debts, trying to live up to standard. My life became terrible, i was too embarrased to fail, i couldn’t afford to loose everything i worked so hard to get. I knew i had to get help so i could focus properly on getting my life back together. So my wife did her little research and one way or the other found a hacker who could solve our problems. i intitially objected to the idea of involving a hacker, but thought to myself if i was really a risk taker this was the time i needed it most. So i emailed him at firewallbreachexpert gmail dot com. And that was how my life was retrieved. My mortgage debts were all erased and he also raised my credit scores. At the end taking risks were right, just calculated ones.
I’m glad it was clear — my husband and I have just bought our first home, and we’ve been looking for ways to pay down the principal faster than outlined in the terms of our 30-year mortgage. Right now, we’re going with making an extra payment on the principal monthly, and hope to add yearly sums on top of that.
Hey Nicole,
Fortunately, we have no mortgage, but really enjoyed the article. You are
one smart cookie!!! I’m passing the site on to Judy, and maybe it’ll help her.
We love you——-
My wife and I allocate every extra dollar to our mortgage so every month we just add to the monthly payment. It is easy for us and we seem to be making some good progress.
Good easy steps. I think it’s important to only pay off the mortgage with extra money you will never miss.
All is good, but… We are the family with 5 children (ages 1-11) and we built up the house for our family. My husband is attorney, his wage was 2200$ by month, we have to pay for mortgage 1200$. But now his wage is downed to 1600$… We have only 400$, and we must pay for electricity 120$, for water and sewerage – 90$. Our boys are talanted and three eldest attend the music school, and we must pay for the music school 60$ (we hadn`t pay for 3 months…), and we have to pay for telephones, too. We need the fuel, too… In the result we have not any money for food… We are eating only potatoes and bread and it takes 180$ by month, therefore we cann`t pay all bills. How we can pay off our mortgage?!…. But from January the wage of my husband will be downed to 1000$… I didn`t say, that we live in Latvia. And we have the another situation with mortgages. Our mortgage is 150 000$, but now all houses costs less. Bank can sell our house for 60 000$, but the rest sum we had to pay to the bank. Therefore we can stay without the house ant with the debt… WHAT TO DO????????
I can’t imagine how difficult you situation is…But, with God’s grace, there’s always a way out… My family of 8 came from Europe in the 60’s…. Somehow, my parents still purchased a house… One idea is for both of you to work… It’s hard, but it’s has been done… One works during the day, the other at night…
Regarding your home, try to work with your lender.. I’m sure that they don’t want to be stuck with another house.. It took me 4 years to modify my loan.. Write letters, especially hardship letters.. They must have a program to help homeowners.. See if your husband can work part-time to bring in extra $$$… since he is an attorney… My husband went from Wall Street with a master’s degree in business to being a garbage man….And, we’re in the United States…
Better to pay for the home than for music for the kids.. They need a home…
Get rid of the cell phones if you have to.. You sound like a smart woman.. Hang in there… God Bless You and your family.. I will be praying for you…
I feel you im a single mom of 5 with about the same income so i would say just add 20 a month at least its something off the principal thats 240 off a year reducing it by 7200 in the 30 year thats about 6 payments
My wife and I are automatically making better than double house payments each month. We made it a goal of ours to get the house paid for before I turn 50. We used to think that we would be better off with a low interest 30 year fixed mortgage, and put as much as possible into retirement savings. Well we decided that we should just put enough into our 401k’s to get the company match until the house is paid off, and then go back to maxing out our retirement savings. This plan will only work as long as we both keep our jobs, and these days living in Michigan, everyday with a job is a blessing. We have recently become distributors for an online greeting card company as a side business. Please click on my name to go to our websight and send someone a FREE greeting card on us. Any profits from this venture will also go right into our plan of paying off the house, and building our retirement savings so that one day we an do the volunteer work that the Lord has called us into full time.
@sanita.
It sounds like you are in quite a difficult situation. As you pointed out the numbers you are working with are impossible to balance. Your house is too much of your income. I wouldn’t think about paying off the house early. Keeping up with the payments is enough in itself. I think you and your husband will need to decide what should go – music, house, or phones. Either that or increase the income. Unfortunately, there is not something you are missing financially. The facts are clear, the option now is what to cut from the budget. I’m so sorry to hear about your situation.
Great article and always interesting blog- thanks!
Just a heads up though, number three is not always available. We have been making payments on the bi-weekly plan for nearly a year, it is easier to just make a payment when I get paid. There is no other financial incentive at my institution though. They let it sit unapplied, until the rest of the full payment is received. This is a recent development, and will certainly factor when we are able to refinance.
Sanita you and your family are in a very tough situation and I think this will take some VERY hard decisions to survive but it can be done.What I love is numbers never lie so….More income has to come in-here are ideas 1) ask yourself what can generate more income think radical like cleaning houses/babysitting/petsitting/cutting hair/doing laundry…the bottom line What will people pay for? 2) Next who else in the family can earn money? can the children return bottles? pick up firewood?babysit? tutor?How about husband-can he do anything like tutor law students,teach a class,give a talk on financial-divorce etc he specialty of law? or just make money for chores like raking leaves/lawn care/painting?Of course ANY expenses that can be cut would be prudent.Best of luck and don’t give up.
We did all of the above (except for the bi-weekly thing. our mortgage company just held onto the initial payment, too) and we did 3 more things.
1: We switched from living every 2 weeks to once a month. In other words, our bills are $3k a month. we saved up $3k. On the first of every month, we pay ALL the bills. It doesn’t matter when they’re due. they get paid on the first. this way, every 3 months we get an extra paycheck (we get paid every 2 weeks and there are 26 pay periods a year per person, not 24). Those extra checks go straight to the mortgage.
2: we live on less than we earn. our bills are $3k, but our take home is $5k (we’re contributing 8% to retirement right now). So $2k per month plus $5k a year with the extra paychecks is $29k a year. Not counting snowflaking and bonuses (from me) and teacher stipends (like soccer coach — from his salary). Living in our condo is so much cheaper than living in a house. we would not be able to save that much if we were in a house (extra property taxes/insurance/maintenance/buying crap for the house like shovels, flowers, shelving for the garage, etc. — knowing we’re only going to be here 5-6 years curbs our appetite for purchasing stuff to “fix-up” the condo).
3: we bought below what we could afford. While everyone else in our salary range is buying $150k homes, we bought an $80k condo. we paid it off in 3 years. We will live here hopefully till we can pay cash for a $150k house (meaning saving up $80k plus closing costs since we’re thinking we’ll get $80k out of the condo–this should take another 3 years. And we think we’ll get $80k after closing costs since the values have gone up a little. They’re adding a train stop at our complex). If we cave and buy a house before we can pay cash, we’ll have more than 20% to put down and then when the condo sells, that will knock down the house mortgage even more. But I think we’ll make the 6-year wait. So a 6-year wait to have the house paid for in full? No brainer.
This is how we did your number 1 above: for the first year we were married, our entire raise went to the mortgage. Then every year thereafter, half goes to the mortgage and half goes to living expenses. So my $30 per paycheck raise, we now pay an extra $30 per month to the mortgage and $30 goes to living expenses. We do this for both salaries.
So am I understanding this correctly. If I decide to make a yearly principle payment once a year, every year, at the begining of the year, I can possibly knock off 6yrs every year I make a payment?
example:
2010-(1) yearly principle payment=6yrs
2011-(1) yearly principle payment=6yrs
2012-(1) yearly principle payment=6yrs….
Using the above example I’ve reduced my 30yr mortgage by 18yrs. Is this what you’re saying?
You will reduce your mortgage payments by 6 years. So, instead of paying for 30 years, you’ll pay it off early in 24 years. Your lender should be able to give you amortization on how many months your mortgage loan will be shorten if you continue this kind of payments for the duration of the loan.
Another strategy which I use on my primary home and my rental property is to divide the payment by 12 and add that amount on every month. For example, my primary home mortgage is $2,000. If you divide that by 12 you get $166.67. I send $2,166.67 per month with the additional $166.67 going toward the principal. By years end this amounts to an extra payment of $2,000 towards the principal.
@sanita Its called get a job and help with some bills and stop complaining when your not pulling your on weight!!!!
@Darryl
@Pam McCormick
@….
The situation in Your country is so different from situation in Latvia!… In our town there so many unemployment, the third is out of job… The local government take some people to clean cellars. It is very hard work, wage is 200$ for month, and they give this work for 6 months, but the queue is so big, that people are waiting for a year and more… The workingplace of the janitor get free and there was more than 100 people, who want this workingplace. You are speakinkg about cleaning houses, babysitting, petsitting, cutting hair, doing laundry, returning bottles? We in Latvia clean our houses ourselves, may-be in the capital lives some rich people and they have house cleaners, but there are not house cleaners in our town, and there are no petsitters in Latvia, but babysitters must have the degree ot the teacher and must haven`t her own children (because many teachers now are without job, therefore the teachers with degree has priority right), and about the bottles….. If somebody drinks beer on the street, there are 5-6 men around and waiting for the bottle, and there are many fights for the bottles, I think it isn`t for 7-11 y.o. boys. And 1 bottle costs 0,04$…
And , for example, for 45 sq.m big flat people had to pay about 260 $ for month, the wage for teachers in highschool or for policemen, or for nurses in hospital is about 300$ by month, the unemployment benefit is 90$ by the month (but only 6 months, therefore the most of unemployment are without any money…) , allowance for child care is 16 $ by month….
It`s the real situation in our country…. Many fathers are seeking for work in Great Britain, and many families are living without fathers, husbands… Many thears…
I and my husband created the charitable foundation “The Bread of Life” and our foundation formed the soup kithchen for those, who don`t have anything. Now 170 people attend our soup kitchen (we cann`t serve more, because the income are only donations ), and a month ago we also started the new project – the pack of food for families every week (this pack includes buckwheat, rice, grits and so on). And yesterday we attended one family – father with 3 children (monther went to seek for job abroad) with 48$ (allowance for child care – 3 x 16$) by month… He weeped for sorrow… (And we, too… )
And we attend families like this every week… And craying every week, because we meet with families with very hard situation….
And now we get the closed rural school to create the crisis centre for families, who losed their homes. At this moment the foundation hasn`t money for this center, but we are praying for…
And about our family – I think we can get out of our debts only with the big God`s miracle!!!
P.S. I`m sorry for incorrect answer. 🙂
Paying mortgage off early is definitely not for the faint-hearted. It makes a huge sense to do it only if you have reasonable cash stashed away, you do not carry interest -bearing balance on a credit card and you do not plan to take out a loan soon. Most other loans have higher interest rates than mortgages especially fixed rate mortgages so why pay off to borrow later. I will put out a more detailed blog post about this soon.
Thank you for this your blog, “Am Loooooving it”. You have inspired me and I am aspiring to be like you some day soon with my blog too.
God Bless You
this is great!
I mean I am still looking for a job but I can totally do this once I have one ( my husband works)
I just did some calculation and I probably can get out of debt faster than I thought
Thank you so much God bless you and your loved ones
Simple Solution;
1. If you intended to live in that house for 30 years –then pay as little as you have to.
For example you bought a house for $200,000 and you paid $200,000 in interest in 30 years in all you paid $400,000 total. After 30 years, I bet you your house will be worth $400,000. If you sell you get all your money back and your lived for free.
2. If you anticipate to live in the house; about 10 years or less. -then pay as quick as possible you will save lot of money in interest.
As far as investing the difference-, You have to be sure that you will make more money in investments. Saving money in mortgage interest is a sure thing.
There is always a discussion about paying off a mortgage early vs. paying off a credit card early. Here is my take on these subjects. My current credit card is 9.9% which is pretty good. It has quite a big balance (lots of reasons but they don’t include frivolous shopping or eating out). I do round up my payment to next $100 when paying and I pay 1/2 of my rounded up payment every two weeks when I get paid. That being said, I have 24 yrs and a few months left on my mortgage (6.25%). I can choose to pay bigger payments to the credit card or bigger payments on the mortgage. In my case, and I am sure I am not the only one, when I file my taxes I end up being better off with the standard deduction than itemizing. Hence, any hogwash about how beneficial it is to be able to deduct mortgage interest, etc. does not apply and is wasted (financial advisors and real estate salespeople are very fond of impressing you with this “tax” savings). So, of course I would rather pay off my mortgage early (using the above calculator says less than 6 more years using the figures I plugged in to “B.” Yes, “B” works fine. Just delete the fields in “A”, insert your stuff into the “B” fields and choose the B drop down button. Voila, you have a nice, neat amortization schedule showing what you curently pay for principal and interest, how each payment drops your balance, etc. I would rather have my house paid for (I am 68) than worry about my family deciding how to pay for it (payments are fairly small compared to a lot of others out there) when I die than my credit card, which cannot be collected once I am dead unless some idiot in the family decided to pay it off on my behalf, and I hope no one is that dumb! I must add that in the mix somewhere I also make extra payments (I have a second job I do at home) against a student loan I was foolish enough to co-sign for and have paid $6,000 against it since last October. So, sometimes it is a dilemma–student loan, mortgage, student loan, mortgage. Of course, Sallie Mae can’t come after me after I am dead, either. Bottom line is, do what helps your financial bottom line the most. Cheers.
Great articles here. I have read several articles on the net and heard advice on the radio to add to a mortgage and pay it off faster and it sounds like something I’d really like to do. My husband and I have had our mortgage for around 18 years. Does it help significantly to start this practice of adding more to the mortgage after all these years?
I want to pay off my loan early too (if I am close to retirement).
However, if you have years towards retirement, then I want you to ask yourself this question…
“Why give the bank an extra $250 today where a cup of coffee will be worth $250 in 30 years” ? In other words, the value of the dollar is worth more today than in 30 years. So use the dollar now and invest it, or put it aside for a rainy day than give it to the bank!
If you choose to put it in a piggy bank for a rainy day, it will come to a time when your piggy bank will be equal to or greater than the mortgage you owe and will one day be able to pay off the mortgage in a lump sum when the rainy day comes.
So cautiously save a nest egg for a rainy day today, while you get enough cash to pay off the mortgage later in a lump sum later on.
I pay an extra $100 applied toward principal each month. Since I’m only on the 13th payment of a 360 payment (30 year) mortgage, every $100 I pay now saves my about $139 in interest.
Calculate your savings for a single $100 additonal payment this way: $100 times the interest rate, divided by 12, times the number of remaining payments on your mortgage. You have to eventually pay the $100 anyway, so you might as well save a lot of money over the long haul.
I’m from New Zealand. Little country to the west of us called Australia for those who don’t know where we are.
Any how, you cannot claim a tax deduction against your mortgage here. However you can make weekly payments on your mortgage. That DRAMATICALLY cuts the time, and interest, on a mortgage. However, you can’t make a single extra payment on your regular mortgage payment. It has to an extra payment done through the bank. But that’s ok, it means less chance of them stuffing up the calculations from the weekly payment changing. Also, our mortgage payment is an automatic deduction by the bank from our money account. No hassles, no late fees, no problem. Just how I like it.
We ad an extra whopping $12/month to our mortgage payment and I believe that little bit is taking 6 or 9 months off of the life of my loan. We were putting an extra $200/month, but that was before we had a child.
Finally being debt free (except for the house obviously), we can now put more money towards the house again. Every little bit helps. Hoping to pay it off in 15yrs, for a total of about 22yrs. Still less than 30yrs, so I’ll be happy with that.
I’d love to live in a condo or townhouse, but because we have gotten “burned” in our last condo deal, as well as all of those crazy HOA rules, the hubby never wants to live in a condo/townhome again. He goes crazy if he doesn’t have a garage which he can tinker in and make noise, so that’s why we bought a house.
Paying of a home early is a great option for those in different areas of the country.
My state WA here over on the west coast. Our Cost of living here is very expensive. Not to mention homes. You can’t get a decent home for under 200,000. Anyways, we bought our home, we are able to live very comfortably by the grace of God due to our faithful giving too. Plus we have a reserve.
Our home is about 450k. We plan on living and growing here. We are 28 years old. Great career. I wonder how would I be able to pay off my home sooner? I can definitely add 50.00 or 200.00 a month but will that even put a dent in it? We plan on living here for 30 years. Any suggestions? Maybe make two or three extra payment a year? We can definitely afford that. Hmmmm. Any advice would be great. I’m all for paying off our home at a young age. 🙂
@JKP. I live in California. Bought my house for $333k and I plan to live here for quite a while. Our extra $12/month has taken months off our loan. The more you put the faster you’ll pay it off. Just use the ideas listed in this article. Or make the 2 or 3 extra payments a year. Anything will help. And always look to refi to get lower rates, but only if it doesn’t set you back a lot of money due to closing costs, etc.
I am following Dave Ramsey’s baby steps. I am currently debt free except for the house. Working on our emergency fund right now.
You’re young and I bet you’ll have that house paid off by the time you’re 45. That’s the age I’m hoping for. I’m in my 30’s.
You’ll be fine as long as you have the income to do it. Your young age is also on your side 🙂
@JKP
Will $50 or $200 a month even make a dent? Are you kidding? If you add an extra $200 per month to the principle then over the course of a year you have lowered the principle amount by $2400!!! That is miles faster than just leaving it as it is… and blowing the money of cappuchinos or whatever. But wait, there’s more (thanks infomercials LOL) not only is your yearly balance $2400 less (actually slightly more coz your table mortgage principle goes down fractionally (very fractionally) each month, but you are paying less interest as well on the outstanding balance.
Let me illustrate using nominal numbers. Say your mortgage is currently exactly $100,000. You make your normal payment of $x plus add $200 to the principle payment. Next months payment will be $100,000 minus $200 minus that fractional payment. But let’s just forget the fractional for our calculations. So next months principle payment is now $99,800. If you then add $200 to the principle payment for the next month you will be paying interest on $99,800 and adding another $200 to the monthly principle reduction payment. So for the third month you will be paying interest on $99,600 and so on. This snowballing effect just magnifies over time (relatively short periods of time I might add) Albert Einstein said (allegedly) that the most amazing thing in the universe is compound interest. Credit Card companies and banks know this only too well. Make it work for you, not against you. Do that $200 a month extra payment. Your life down the track will thank you handsomely. Oh, and don’t buy into the bigger house syndrome either. Means more insurance, taxes, upkeep, heating, cooling, decorating, financing. All which means more money out of your pocket and into theirs. Better for you to have the money to do the things you want to do. Good luck and happy principle investing from the Kiwi guy in lil ol New Zealand.
Having all your money in one place can be extremely beneficial. Firstly, you can see exactly how much you owe on everything. You view one account and know how much money you have to pay back. Also, there are definite financial benefits to a current account mortgage.
These are great ideas for accelerating the payoff of a mortgage, but one additional item is very important. Make sure you track how much additional money is being paid against the note, just to keep your lender honest. Also, pre-payments in the early years of the loan have the greatest impact on how much interest you pay and how fast the loan is retired. Get a printout of the amortization schedule for your specific loan, from your lender. First, you’ll be able to see how little principal the early payments subtract, and thus, how additional payments in the early years of the loan have the greatest impact. It also can serve as a way to track which payments you knock down when you pay principal early. It may be a little retentive, but you might want to consider adding up the amounts from the principal column, writing a check for the largest sum of these that you can handle at a given point in time, copying the appropriate page(s) from the amortization schedule, and sending that in along with your pre-payment. This helps you keep track of where you are in the loan, and lets your lending institution know that you’re keeping track of things. It takes a little extra time, but you’ll know where you stand.
What about paying your mortgage weekly rather than bi-weekly?
Thanks so much. These are wonderful advice! I will work that into my budget and income sheet. I can’t wait to pay it off!
We are currently debt free as well. Our car is paid off too.
Heating and everything here is not too bad. I pay 50.00 a month for lighting and gas is about 100.00 a month. Pretty decent compare to other places.
Thank you so much! God bless! Keep serving the King.
Where do you live?
Is there any link to calculator for one time payments once a year. Then it would be east to compare with extra payments made every month
Great article. This is the stuff that any banks or loan companies will never tell you. By putting something towards the principal and paying bi-weekly saves you a lot of interest payments already. Majority of people dont know that they are racking interest on their mortgage everyday, and by paying it on the 1st and 15th day, you can knock half those interest each month and saves you from interest payments in the long run. Also, make sure you pay your principal within 1st of the month and tell the mortgage company that its for principal only. Some banks or loan companies will just add it to your next mortgage payment and penalized you for paying extra each month.
If you do biweekly payments through your lender, just make sure they don’t charge you for it. If they do it’s not worth it. You can accomplish the same result by simply making an extra payment per year, which is what biweekly payments accomplish.
Oh, and another thing –
David Mason commented about keeping the lender honest by tracking the payments. Never a bad idea, plus it’s just good to keep track of your progress on your own anyway. One of the best ways to do this is to use Quicken. You can program in the loan and track your extra payments. The software will track the progress of the payoff of your loan.
Ah, yes, the fees of a bi-weekly program. I personally don’t like being locked into something that aggressive. The extra amount I pay per month is consistently increasingly, slowly. But then again, if I do have extra money then it goes to the mortgage as well. Current goal is to make 1 or 2 extra payments a year. Every little bit helps. My overall goal is to pay this puppy off in 15yrs or before my son graduates high school, whichever comes first.
I look at my statement, take the principle that is due and double it..
my interest is 650..principle is 235..so i automaticly set up to take out and extra 250…in 3 years i will bump that up to 350
I have a question on paying the motgage off early. Someone told me that to pay the monthly payment and pay 3 months of principal payment to the mortgage from amortization schedule will reduce interest payment also I will not have to make 3 months payments.
Is that true?
Thanks.
I just wanted to thank you for this article. I had a discussion at work about the advantages and disadvantages of a 15yr mortgage and 30yr mortgage. Also the payment plans that I would like to pursue once I’m locked into that particular loan. I’ve come to the conclusion before even coming to this site that we would contribute half or all of our tax refund towards the loan of the house.
For Wijahat–
Making three payments of principal with your house payment only takes it the principal amount of money due at the end of the loan. It does NOT cancel three months of house payments. If you try to do that, you will be three months behind in your regular monthly payments, as your loan is set up for monthly payments, regardless of the balance due. Then you would be in a pickle, behind in regular payments, and your credit report would reflect the same. So, yes, make those extra three payments toward your mortgage as it will show up in the end pay-off and savings in interest.
We had Citimortgage, who would not accept anything but full mortgage payments…so we couldn’t do a bi-weekly plan (paying a whole extra payment a year), unless we wanted to pay Citi $400 for it. Forget that! So, every time we made a 1/2 payment of $500, they would apply it to principle and say we hadn’t paid our payment. I had to call every month to have them combine the 2 payments. After about 6 months of that, we decided to take that $1000 extra yearly payment and divide it out over 12 months. Now we still pay 2 payments a month, but one is the full payment ($1000) and the other is the little bit extra (1000 / 12 = $83.33). The 83.33 automatically gets applied to principle, and I don’t have to call them every month! Just a suggestion for everyone who thinks paying $400 for a bi-weekly plan is ridiculous.
We just bought our first house. We have a $63000 loan, with 5 yr term. We have a high interest rate, for two reasons: a) we have bad credit b) we owner financed (because of the credit).
We can pay off early without penalty, and want to do so. I am wondering how to determine how much extra to pay each month so we can pay the house off in half the time, which would be 2 1/2 years.
My husband and I already pay extra on our mortgage principal 1/12th of our monthly mortgage payment. On top of that, we decided that any money we have beyond a set amount (mutually agreed) in savings will be sent to the principal. We just refinanced to a 15 year mortgage at 3.75% and our first payment began January 1st. We have already paid over $5K to the principal of the mortgage. I want to add that we are blessed to have good income and I’m aware that not everyone can do that, but every little counts. We’ve entrusted our finances to God and He is leading the way.
It is now almost the end of June and we’ve paid over $16K on the principal of our mortgage. It’s not easy, but we keep plugging along. My goal is to have our $243,500.00 3.75%/15 years paid off by January of 2018.
As of today, we’ve paid $22,400.00 We are almost one year ahead of schedule. By the end of the year, God willingly we will have 13 years left on the mortgage instead of 14 years.
These are some good tips. I am using all 4 strategies to pay off my mortgage, hopefully by age 30. That’s what my blog is about. First, I set up automatic payments, which are bi-weekly. They are taken out the Monday following each paycheck. Then I plan to make a yearly contribution, around tax time. About 3K. Thirdly, I track my monthly expenses, and send a portion of what is left to the mortgage company. They’ve done a good job of keeping up with all the extra payments so far. My initial loan was 15 years. I’m on track to pay it off in 3-5, depending on how I do.
@ mike
that is awesome dude
I was nearly 30 when i bought my house. But after a divorce and other bad situations i got a 15 year loan…and have been making a few extra paymens here and there…as of now i got the loan down to less than 13 years and am keep taking it down.. also you have a quicken program it will automatically deduct your payments and it is neat to watch the last payment go down and every now and then disappear when you make extra payments
I did these things on my mortgage. I started with a principal of $198k @ 6% interest rate in 2008. In 2009 I rolled over to a lower interest rate plan @ 5.375% in 2009 with a principal balance of $194k. I maintained the same payment I was making when rates were 6%. In sept. 2010 my principal went down to $189k. I refinanced to a 15yr term @ 3.875% and my balance today is $186k. It really felt very nice to reduce my interest payment from $900 to $800 and now to $600 per month. Also principal payments going from $100 to $250 and now to $800 per month. The best plan to pay off a loan is to always make payments at least 50% towards principal. every dollar you are paying on a principal is a dollar you are putting in a savings account. Don’t use mortgage interest as an incentive to prolonge your debt, but instead as a resource to reduce the amount of taxes you have to pay. For every $100 dollar you earn is always better to pay $33 to the IRS and keep $67 in your pocket than pay $100 dollar on interest and only keep $33 from your income tax return. If you can’t pay off your home 15 yrs or less, try buying a smaller home. You have the rest of your life to purchase the home of your dreams. Interest rates are not going to stay low for ever, but they just keep getting lower and lower every year since 1981.
While this sounds very enticing, the amounts of money spent on refinancing fees and costs I would think would be a huge waste (especially only to gain barely 4/10 % in interest rate the first time). That money could have been put against the principal (more than once, as I see refnancing seems to be rather the norm for Gerry). You can pay off your mortgage in 15 years without going through all this hassle and fees with just very good payment application habits.
I forgot to mention that my first refinance was made free. I literally transferred the balance from my original mortgage to the new one without paying a single penny on fees. I only had to take an increase on my interest rates that was offered at that time from 5% to 5.375%. But I was already paying 6%. So I lowered my monthly payment from 1190 to 1090, but I kept making the same $1190 I was making when at 6%. The second refinance plan will pay itself off in December of this year (2011). The amount that I paid on fees, I would have paid them on interest if I had kept my original 30 yr mortgage at 5.375%. I believe that if you can take a drop of 1% on your interest rates for a refinance plan, you consider refinancing your mortgage. Of course every case is different and every situation needs to be analyzed carefully before making these decisions. It is not very easy to go from 1200 to 1450 on the monthly payment, but it’s worth the effort in the long run. I just wished I had started with this mentality the first time I purchased my home. My balance would’ve been much lower now. Thanks for replying to my post.
what about weekly or even daily payments
My husband passed away a couple months ago. He told me whatever I do he wants me to pay the mortgage off. So, I did a couple days ago and I will tell you what it feels great! I dont plan on moving anytime soon but it will be nice not having to pay 1500. a month to make someone else richer!
I really enjoyed reading all this helpful information about mortgage payments. I only wish that I had this all before I bought my house 13 years ago. I will be using alot of these mortgage tactics. May God continue to Bless you.
From my experience I can say, there are financial calculators which show you in detail how to payoff mortgage early. The calculator which I use is ” Smart Loan Calculator Pro ” which is available in app store for 2 bucks. It is awsome. It is not for one time. It is life time useful smart calculator. Give it a try. I guarantee, you would thank me after you download and check it. After checking this, I realized how easy to payoff martgage early.
We are in the process of trying to refinance our FHA mortgage to 3.25%. I DO NOT plan on paying extra payments on my mortgage if I can get a rate that low. That will make our payment about $300 less per month and the payments would be much cheaper than what it would cost to rent this house.
Also, if we start to experience high rates of inflation (most likely we will), it will be easier to pay the house off.
Good suggestions. I have a $264,000 mortgage at 3.95%. I will have our house paid for in 7 years. How? I take my entire net paycheck $5000 a month and apply it to my mortgage every other month. I use my CC for all other monthly bills and living (Roughly $2000/ month). I pay off my CC bill before I’m charged interest with a Line of Credit(not HELOC) every month. I then pay off the LOC before I’m charged interest on the odd months that I’m not applying my paycheck to my mortgage(roughly $3300 a month- $2000(CC bill)+ mortgage payment). I them just repeat the cycle, never paying interest to the LOC or CC. I also earn cash rewards from my Chase CC and get a check at the end of the year, not to mention paying the LOC and CC off every month and my credit score is 805. This is, by far, the best and fastest way to pay off the mortgage without adjusting your lifestyle or living off Raimen noodles to do it. I have no idea why more people aren’t doing this. It’s shifting your own money to work for you instead of against you. I hope this helps someone
Hello-How to pay off your mortgage early- 5 pain free tips for paying off your mortgage early
Reading the information that you’ve posted I have a question on step number two changing your W-4 to get less refund so you can increase your monthly mortgage payment. Now, I question as is this really reasonable? Most Americans today cannot afford to make extra payments on their mortgages. However, it is feasible for them to take extra money received from and income tax check and apply it to the mortgage. I understand the savings is not as much however when suggesting that people have more allowance’s deducted from their paychecks isn’t it possible that people would tend to have too many allowances taken out and this would cause them to actually owe money on their taxes and defeat the entire purpose? Now, I do think that you have provided some great ideas overall and I believe that if anyone can pay biweekly that is a great incentive to paying off early. I will try and use these suggestions and get my mortgage paid off early but, I think the best one for me personally will be the pay increases and putting the extra money toward the mortgage.
I have done all of these and it was great to pay off our house that soon. Why give the banks all that money in interest if you don’t have to. If I can do it anyone can. Once you set it up you don’t realize how fast it goes by. Do it today!! Don’t wait.
Perfecting timing, My husband and I just became homeowner!
get as much mortgage money as you can, reinvest it in paid for investment real estate deals and sell them on contract for 9 percent each. you win.
I bought my unit several years ago aligned my payments to my fortnightly pay day… Initially my mortgage repayments were approx $585 a fortnight, so I set my mortgage payments at $600 and making extra payments no matter how small, whenever I could.
I have had my loan refinanced at a better interest rate, where my required repayments are now $455 a fortnight. I have informed my bank that I would like to continue to pay the $600 on my set fortnightly pay (which is $145 every fortnight going straight off the principle). Despite my fortnightly pay has gone down, due to the loss of shift work penalties I used to get, and that I am paying of my mortgage on my own as well as all my other standard bills – this just means that I go without other things, and if it means movies, dinners out, new clothes or whatever- I’ll do it cause I’d rather get pay my mortgage sooner!
What an AWESOME article! My husband bought the house before we were dating. He’s the spender! I’m the saver/finance savvy one. When we were engaged, I made an amortization schedule (nerdddd) and made it spit out the number of years saved and the INTEREST amount saved over the life of the loan (in giant, bolded, green numbers). He was all ho-hum about it as I was chattering away, but when I added just $50 to the principle payment per month and the numbers spit out, he leaned over and said, “Whoa… Wow! … Okay, what about $100 per month?” It was a really cool experience for us, and he was on board!
I did the same thing for his school loan, which he was already paying extra on, and in less than a year we paid off the school loan and added to the mortgage significantly!
All that “bragging” to say the best part….
We have accepted positions with Campus Crusade for Christ and are moving overseas to serve college students. God provided and someone bought our house after having the sign in the yard for 2 days. The mortgage was so young (2 years!); we were terrified we’d go into debt selling it and paying for closing costs, but we took a step of faith. BECAUSE WE PAID DOWN OUR MORTGAGE SIGNIFICANTLY OVER ONLY ONE YEAR, we MADE MONEY on the house. We got it all back plus about $1500 which is going straight towards our funding!
I’m sending this article to our dear friends who are preparing to purchase a house next year. Thank you for making this article so clear, straightforward, and dummy-proof. This is written for nerds and non-nerds alike!
Make sure that when you pay extra on the principal you specify where you want the money applied. At many institutions if you pay extra it just counts toward your next payment and not principal.
I think your #2 advice is all wrong–your caculations. If you pay twice a month, I owe for 10 years yet with only $125 going toward the principle. If I paid twice a month my payment of $375, the second $325, should be off the principle, so I should have $500 a month off the principle, that is $6,000 off the principle per year, so I would have only 3 years left instead of 10 years left in payments. Explain.
This information is so helpful! Thanks for all the ideas. I just wish I would have read this 6 years ago when I got a severance package from my previous job – I would have used that $ towards our loan. Now mid 40’s we are trying to get one kid off to college and still have another in the house for 7 more years – chances of doing anything drastic with our mortgage at this point is unrealizstic – If anything I will share these experiences with our children before they buy a home and save them some heartache…
It’s so important to get this debt stuff knocked out! My wife and I have had all of our other debts besides the mortgage, paid off for about 3 years now and it’s such a great feeling. The thought of even having a car payment again makes me want to throw-up! We can now give more money and save more money than we ever thought possible. (God is good!)
I’m excited to get my house paid off, I’m going to check into the “refinance but pay the same amount” technique you wrote about. I look forward to reading more of your stuff.
Thanks!
This is my goal is to bet debt-free so I can preach the word with freedom and help others
If I paid my mortgage off twice a month, the second month should totally toward the principle, in which case I could have my mortgage paid off in only 3 more years instead of 10 more years
These are great tips. My husband and I paid off our 15 year mortgage in 33 MONTHS! It was a $110 loan. We basically followed the tip of paying extra each month and large sums when we could. Cannot tell you how much money we saved doing this and how much stress as well was lifted. I was 24 years old when we did (29 now). It really is possible to do this. I’m going to share this post on my blog.
In a nutshell, there is only one rule to do it – Save more (to payoff debts early) and spend less. Nothing more, nothing less. Well, easier said than done but this is is the simplest way. The rest is just mind-conditioning. How to make yourself comfortable in saving a big chunk and to avoid self-pity
Love your ideas. We use to pay a late payment every month due to fixed income arriving after mortgage due date. Once we were able to pay on time, we now pay the late fee to principal and a small amount toward the escrow to offset tax increases.
I really recommend your advice to check if your bank will be able to accept bi-weekly payments, as opposed to a monthly payment. My brother recently told me that he is trying to refinance his house so he can pay off his mortgage early. I will be sure to tell my brother that he should check if his bank will accept bi-weekly payments.
Thank you for the brief and practical ways of paying off a mortgage. Great tips. Keep up a good post!
Thanks for helping me understand that we should ask a lender first if they allow prepayment without penalty. I will definitely do that since it is our goal to finish the payment as early as possible. My husband and I talked about paying for two months in every month so that it will be finished in just half of the duration of the loan.
Hi. I love your blog and biblical principles. I was reading this post which says that applying 25% of take home to your mortgage while getting 4% annual raises will cut 13 years off a 30 year mortgage. What’s the math behind this? I’ve run the numbers on two different calculators which both resulted in shaving off about 4 years.
Thanks!