Accelerated Mortgage Payoff – Save $10s of Thousands and Own It Sooner

People have multiple financial priorities in life. For some it’s saving the down payment to buy a first home. Others are saving college tuition for children, for their own retirement, or untold other worthy financial goals. One that is often over looked is accelerating the payoff of their number one asset – the home they already own.

There are many ways of doing this and doing so can save you 20, 30, 40, 50, thousand dollars over the life of your mortgage. For instance, you might make minimum payments for the first 5 years on a $200,000 30-year mortgage at 4.2 percent. Then, at the beginning of the fifth year, you start adding an extra $150 to your monthly payment. Your interest savings over the remainder of the loan is $26,093. A 17.15 percent savings. But there are many methods of saving interest and/or paying off your mortgage early. That is one of the more modest ways.

As time passes on a 30-year mortgage, the percentage of your income going towards your biggest asset will almost certainly become less. Inflation means the dollars you pay in the future are worth less than today. As you grow in your profession, you’ll earn more money. You may have occasional financial bonanzas in the form of bonuses, large tax returns, or inheritances. Heck, you might even win $15,000 playing the lottery. Each and every one of the following can be used to pay off your home earlier.

Regular extra annual payments. Using the same $200,000 30-year mortgage at 4.2 percent, you may be able to begin making an extra $2,500 annual payment after a few years. Around year 5 is when many people find their income out pacing their mortgage payment. That extra $2,500 annual payment results in paying off your loan 6 years and 11 months earlier at an interest savings of $34,449. A word of caution, keep an emergency account for unexpected financial needs.

Make 13 payments in 12 months. You could put 1/12th of a monthly payment into a special savings account (about $82 per month). Or maybe you get paid every 2 weeks that results in an extra paycheck two months out of the year. Making that 13th monthly payment saves you about $26,000 of interest and cuts more than 4 years off the length of the loan.

Switch to a 15-year mortgage. No extra payments needed. A great time to do this is if you refinance your mortgage when a better interest rate is available. You’ll save even more in interest payments and pay it off much faster. Refinance that same $200,000 ($181,130 remaining balance) mortgage at year 5. Going with a 15-year mortgage automatically shaves a full 10 years off your payments. Shorter term loans often have a lower interest rate. If you refinance into a 3.7 percent loan, your interest savings will amount to about $56,140 (doesn’t include refinance costs). A word of caution, the shorter mortgage length does lock you into higher payments each month (about $334 higher). Combine that with a few extra annual payments to achieve truly extraordinary savings.

Pay an extra principle each month. Get a copy of your amortization schedule. Each month, write a separate check for the amount due towards your principle the next month. You don’t borrow the money that month, so you don’t owe the interest on it. Consistently doing this every month from the beginning effectively changes your 30-year loan into a 15-year loan. No refinancing required.

There are many ways to pay off your mortgage early and many online mortgage calculators to show you how much you’ll save. You may want to be debt free or you may want to pay off the mortgage before retirement.

Still, there are other reasons not to pay off your mortgage early that you need to consider. This can become complicated because you probably write the interest off against your yearly income tax. You should also consider how much you could earn by investing the money elsewhere.  This could be a good time to consult with a financial advisor about your specific circumstances. However, never take his or her suggestions at face value. Always be sure you fully understand the numbers shown to you. Including any commissions or fees he or she makes on alternative investments. Certainly, you have thoughts and experiences about paying off a mortgage early. Please share by leaving a comment. Also, our weekly Ask Brian column welcomes questions from readers of all experience levels with residential real estate. Please email your questions, inquiries, or article ideas to

Author bio: Brian Kline has been investing in real estate for more than 35 years and writing about real estate investing for 12 years. He also draws upon 30 plus years of business experience including 12 years as a manager at Boeing Aircraft Company. Brian currently lives at Lake Cushman, Washington. A vacation destination, near a national and the Pacific Ocean.

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