Borough of Bellefonte

4 Simple Ways to Pay Off Your Mortgage Early

01.26.2022  |  Email This Post   |  Print This Post

4 Simple Ways to Pay Off Your Mortgage Early

Buying a home is a major expense and a major debt. Its said its the biggest purchase youll 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.

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 arent 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, youll still come out ahead. Take into consideration that your tax liability will likely increase incrementally if youre already in the middle of paying off your mortgage.

Another argument against is that the extra money could be put into investments but youd 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 helpful resources paying 1% in some places. But dont 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 dont 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 months mortgage payment. That wont 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.

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 years 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.