Pay Off Your Mortgage Early


Owning your own home is the American dream, but for many, a 30-year mortgage payment is not so appealing. Unless you’re independently wealthy or holding onto the Powerball winner, a long-term mortgage may be a necessity. Yet, there are steps you can take to reduce mortgage debt.

The First Step

Make sure you are “financially fit.” Pay off high-interest credit card debt, invest in retirement consistently and have an emergency savings plan to cover six to 12 months of living expenses.

Pay a Little More

Paying even a little more each month can add up to significant savings on your mortgage. Round up your payments so you’re paying a few extra dollars or more a month.

Make Payments More Often

You can chop years off a 30-year mortgage and tens of thousands of dollars over the life of the loan by making just one extra payment per year. Here are some examples of how extra payments can affect the average $220,000, 30-year mortgage with a 4 percent interest rate:

  • Divide your payment by 12 and add that amount to each monthly payment. Or pay half your payment every two weeks, known as a bi-weekly payment. You’ll make one extra payment per year, but it will save $24,000 in interest and shave four years off your mortgage.
  • Make an extra house payment each quarter (four per year), and you’ll save $65,000 in interest and pay off your loan 11 years earlier.

Always contact your lender before making any adjustments in payment schedule or amount. Some companies may have pre-payment penalties, charge a set-up fee or only accept extra payments at specific times. Always make sure the additional money is applied to the principal and not the next month’s payment.

Consider Refinancing

Interest rates continue to be at the lowest levels in decades, yet many homeowners have not refinanced. Experts say if you can reduce your current interest rate by .75 to 1 percent, it’s worthwhile to refinance. If you plan to stay in your home for at least three more years and your mortgage is more than $100,000 at an interest rate of 4.75 percent or higher, ask your lender for its best refinancing rate.

Or shop around to find the lowest interest rate. Use this handy refinance calculator to see how much you could save.

Once you’ve lowered your monthly payment, continue to pay the same amount as your previous payment.

Take out a Loan with a Shorter Timeframe

If your budget allows, take a look at refinancing a 30-year fixed-rate mortgage to a 20- or even a 15-year mortgage. With interest rates currently hovering at between 3 and 4 percent, your payment may increase slightly, but you can pay off your loan years earlier, build equity faster and save incredible amounts in interest.

Pay Like You’ve Refinanced

If you don’t want to refinance and can afford a payment that is no more than 25 percent of your take-home pay, consider paying on your 30-year mortgage like it’s a 15-year mortgage. If you can swing it, you’ll increase your payments but get out of debt sooner.

Put Extra Cash To Good Use

Did you get a surprise inheritance? Raise? Or a nice bonus or tax refund? Put any extra windfalls toward your mortgage. Hopefully, you won’t miss it and it will pay off in the long run as you work to reduce that mortgage.

If you’re looking to start fresh with a new home that fits your budget, contact one of our New Homes Specialists.

Inland Empire 951-298-9675
San Diego 619-727-6105
Las Vegas 702-337-2753
Los Angeles/Ventura 661-713-1996

Mortgage-related savings are estimates based on certain assumptions. Models do not indicate racial preference.