Paying off your mortgage ahead of schedule can save you tens of thousands of dollars in interest. Here are the most effective strategies homeowners use to become debt-free sooner.
Instead of making 12 monthly payments per year, split your payment in half and pay every two weeks. This results in 26 half-payments — or 13 full payments per year. That one extra payment goes entirely toward principal and can shave about 6.1 years off a 30-year mortgage while saving about $111,500 in interest (on a $350,000 30-year loan at an example rate of 6.75%).
If your mortgage payment is $1,847/month, round it up to $1,900 or even $2,000. The extra $53–$153 goes directly toward principal. It is a painless way to make progress without feeling a major budget hit.
Once a year — perhaps with a tax refund or bonus — make an additional full mortgage payment designated as principal only. Over the life of a 30-year loan, this can cut your term by 4–5 years and save a significant amount in interest.
Whenever you receive a financial windfall — an inheritance, bonus, side income, or tax refund — consider putting a portion directly toward your mortgage principal. Even a $2,000 lump-sum payment early in your loan can save about $12,800 in future interest (on the same example loan: a $350,000 30-year loan at an example rate of 6.75%, with the $2,000 paid in month 1).
Refinancing from a 30-year to a 15-year mortgage typically comes with a lower interest rate and forces faster paydown through higher required payments. While your monthly payment increases, you will pay dramatically less interest over the life of the loan.
When you refinance, restart your amortization clock carefully. Refinancing a 25-year remaining balance back into a new 30-year loan saves on monthly cash flow but adds years and interest. Consider refinancing into a term equal to your remaining years.
If you are paying Private Mortgage Insurance, eliminating it as soon as you reach 20% equity frees up cash that can be redirected to principal payments. Request a PMI cancellation from your lender once your loan-to-value ratio drops below 80%.
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