Buying a house is a long-term commitment. It’s also a big investment opportunity, with a lot of incentive to accumulate equity as quickly as you can if you don’t think that you’ll be in your home for the full 30-year term of a traditional mortgage. Putting in the effort to pay off a home faster could mean more money in your pocket when you go to sell later on. It could also help you chip away at both your principal and your interest so that you’re free from your mortgage sooner rather than later—an endeavor that may be worth it for those homeowners who do plan to stay put.
If you’ve decided that you want to pay off your home faster, there are a number of different strategies that can help you make it happen. Get started by choosing one or mix and matching a few that align with your budget and goals.
How to pay off a mortgage faster
Round up your monthly payment
One way to make a small but noticeable difference in your mortgage every month is to round up when you cut your check. So if you owe $1,275, for example, send $1,300 instead. That extra $25 might not sound like much, but in most cases, you can arrange for any additional payments to go directly to your principal payment, instead of toward interest. Check with your mortgage provider to see if that’s something you can arrange, and consider taking on another $50 or $75 while you’re at it to pay off your loan even faster.
Make an extra quarterly payment
Assuming your lender does in fact allow you to apply extra payments to the principal of your mortgage, an alternative to rounding up your monthly payments would be to make a larger lump payment once per quarter. Determine what’s reasonable in light of your current financial situation and other financial goals, and if possible, aim to put the equivalent of one full month’s payment (or more) toward your loan each quarterly period.
Pay biweekly instead of monthly
One trick to how to pay off a home faster is to divide your monthly payment into two payments and pay on a biweekly basis. This reduces your total interest cost and also speeds up your repayment since it’s the equivalent of making 13 payments a year as opposed to 12. It’s estimated that making biweekly mortgage payments can help you pay off your mortgage about five years sooner on a 30-year term loan and can reduce your interest owed by tens of thousands of dollars.
Look into mortgage refinancing
There are a number of benefits to refinancing your mortgage, and the ability to restructure your costs so that you can pay down your loan quicker is just one of them. When you refinance, you take your current mortgage and transfer it to a new mortgage with new (and ideally better) rates. If you’re able to refinance at a time when interest rates are lower than what they were for your original loan, you’ll be able to lower the amount that you owe each month. Then just continue to pay what you were already paying and let the extra money accumulate in your favor.
Go for a shorter term mortgage
Another way to use refinancing to pay off a home faster is to use it to switch your 30-year term mortgage to a 15-year term. Your monthly payments will go up, but you’ll end up paying significantly less in interest over time. You’ll also have a ton more equity available in a shorter time period for something like a HELOC (home equity line of credit) if you decide to take one. Just make sure that you have sufficient cash flow to support this option if it’s the way that you choose to go.
Recast your mortgage
Mortgage recasting is similar to mortgage refinancing in that it changes the terms of your loan, but it doesn’t require that you transfer your existing loan or pay the often heavy fees to do so. Rather, to recast a mortgage you would make a large payment toward your principal balance and then have your lender recalculate your monthly payment and re-amortize your loan based on the new balance. This strategy is commonly used by homeowners who buy and sell a home at the same time since they can purchase a home and then recast after they’ve sold their first home and put the profit toward their new mortgage.
Allot all or a portion of all extra cash to your mortgage
Received a tax refund? Got a bonus at work or a large cash gift? While choosing how you want to save and spend your extra funds, consider funneling at least a portion into your mortgage. Making your mortgage a priority in these sorts of instances ensures that you don’t miss an opportunity to take a bite out of what you owe, and it can be done while also setting money aside for savings and fun.
Invest wisely at the outset
This won’t help you if you’ve already purchased your home, but if you’re currently looking to buy and know that you don’t want to be saddled with a mortgage for the next few decades, then make that one of the key deciding factors in purchasing a home. That will mean not buying more home than you can afford—or even better, buying less home than you can afford. It also means not buying a fixer upper since that will require putting large sums of money towards home repairs and improvements.
The decisions that you make now can have a big impact on the logistics of your loan moving forward. Whether that means restructuring your payments, paying more toward your principal every month or quarter, or simply buying a smaller, more affordable house, if you’re set on paying off your home faster there are certainly ways that you can make it happen.
Is it smart to pay off your home early?
Now you know how to pay off a home faster, but is it something that’s worth pursuing? That depends on what your long-term goals are.
Some good reasons to pay down your mortgage faster include:
- Eliminating debt
- Freeing up cash for other uses in the future
- Reducing the overall interest cost on your loan
- Getting rid of your PMI (private mortgage insurance), if applicable
- More equity, which will come in handy if you want to take out a HELOC
- Owning your home faster
All of these are good reasons to pay off a home faster, but it’s important that you consider them in light of the possible disadvantages. Some of the cons to paying off a mortgage quickly include:
- Taking cash away from other investment opportunities, including retirement
- Having less cash on hand for emergency needs
- Possible penalties for early payment from your mortgage provider
- Losing out if the value of your home drops
Keep in mind that while a house is certainly an investment, it is also considered a non-liquid asset. This means that there’s no guarantee on how quickly you’ll be able to access the capital later on if you need it since it can take weeks, months, or even longer to sell—plus you don’t know if you’ll be able to sell for a profitable return.
If you’re unsure what your best bet is, work with a financial planner to outline your current financial situation and future financial goals; then see how a faster mortgage payoff would help or hurt your plans. Note that it is certainly possible to only make higher or additional payment on occasion, and that if some months or years it doesn’t make sense to pay extra you are under no obligation to do so.