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Mortgage Hacks to Painlessly Pay Your Mortgage Off Early

Mortgage hacks for how to pay off your mortgage faster. Because nobody wants to still be paying their mortgage 30, or even 15, years from now.

How to pay off your mortgage faster – in 10 years, or even 5 years?

young couple painting a wall and high-fiving each other, text overlay "mortgage payment hacks to pay it off early"

Being locked into a mortgage for too long can really clip your money wings, causing you to feel house poor (especially with these current interest rates).

So today, we're going to talk about mortgage hacks for current homeowners – as well as mortgage strategies for homeowner-hopefuls – to keep your home from becoming an anchor for decades to come.

Bonus: You definitely want to check out my 9 strategies for getting the cheapest homeowner's insurance policy. That way, you can send extra money back into your mortgage payment.

How to Pay Off Your Mortgage Faster Calculator

Do you already own a home?

I'm about to show you several mortgage hacks to get you out of debt much sooner than the traditional mortgage payoff process of 30 years.

You'll want to plug the ones that interest you into a mortgage payoff calculator to show you how much progress you'll make.

Why?

Well, first off, it will motivate you to make some changes. And secondly? It'll motivate you to keep going once you've been using the new method for awhile and start feeling that debt fatigue.

Here's two “how to pay off your mortgage faster” calculators I like to use: 

Now, let's check out those strategies.

Mortgage Hack #1: Refinance Your Mortgage into a Shorter Loan Term

Mortgage rates right now feel pretty out of control.

One way you may be able refinance your way into a lower interest rate than you currently have is by locking your new mortgage into a shorter term.

This is what we did – we refinanced from a 30-year mortgage down to a 15-year mortgage.

There are some real positives to refinancing your mortgage into a shorter term.

Including:

  • Building equity faster into your home (because the amount you are paying off of the actual principal loan is much higher on a shorter term loan than on a 30-year loan)
  • You generally get a lower interest rate (because you are less of a risk to lenders since you will have the loan paid off more quickly)

Note that while there are many positives to this, there are also some cons.

For example, your monthly payment will likely go up, so make sure you can absorb this extra cost.

Depending on the interest rate difference, this may not be a problem; when we refinanced our mortgage from a 30-year mortgage to a 15-year mortgage, our interest rate dropped from 5.5% to 3.5%, so we were able to shave an amazing 15 years off of our debt repayment for just an additional $200 per month.

These are simply not rates you'll currently find.

Also, since you will be paying more in principal and less in interest, you may no longer pay enough in interest to take the mortgage interest tax deduction come tax season (this actually happened to us – the standard deduction saved us more money than itemizing deductions, and you need to itemize to take the mortgage interest tax deduction). Although this is a great thing, it might take away any tax return you've been used to getting.

Finally, there are closing costs involved with refinances.

Mortgage Hack #2: Equity Accelerator

There's this very interesting mortgage product in the United States that homeowners in the UK and Australia have been using for years.

It's called a Mortgage Equity Accelerator.

And there are two types:

  • Mortgage Accelerator HELOC
  • Bi-Weekly Mortgage Payment Plans

With the Mortgage Accelerator HELOC, borrowers deposit their paychecks into a HELOC (Home Equity Line of Credit) account. It essentially becomes your checking account.

The reason why this works is that every month, every unspent dime goes against the mortgage loan balance.

On top of that (and the real magic to it) is while your paycheck sits in this account waiting to be spent on bills, the full amount is applied to your mortgage.

So, for part of the month, several thousand dollars has been taken off of your principal loan amount, resulting in less interest accrual each month. Since less interest is being charged, more of your typical monthly payment goes towards principal rather than interest.

Interesting, right?

Of course there some serious cons to consider.

For example, you're taking on a new loan (the HELOC) in order to use this account. And you should know that HELOCs come with variable interest rates (something that is fine in low-interest times, but that may bite you later when interest rates go back up, like they have been doing lately). You also will likely be paying fees to use this account, which could cut into the overall interest savings you can achieve.

The second type of mortgage accelerator is a Bi-Weekly Mortgage Payment Plan.

The bi-weekly mortgage can be your friend, specifically if you're paid on a bi-weekly basis. That's because when you pay 26 half-payments throughout the year, you actually make one extra payment to your mortgage than if you were on the normal mortgage payment plan (13 payments in a year, instead of 12).

And one extra mortgage payment per year really adds up! Go ahead, play around with one of those calculators above to see how many years doing this can shave off of your mortgage.

Of course, this also comes with some cons. Specifically, many of these programs will charge a fee for you to participate.

Which leads me to a fee-free option…

Mortgage Hack #3: Sync Your Mortgage Payment to Your Paychecks

What if you don’t want to refinance your mortgage OR you don't want to pay extra fees to take part in a mortgage accelerator program?

There may be a third and less painful option for those of you who want to payoff mortgage early (and honestly, who doesn't want to know how to pay off their mortgage faster?).

To pay off a mortgage faster, you'll want to:

  • Call your mortgage lender to ensure any extra money you send in will be applied to your principal debt (see below for more info on this)
  • Sync your mortgage payments to your paycheck so that part of each paycheck pays the mortgage

By timing your mortgage payment to your paycheck cycle (weekly: ¼ of the payment is sent each week, or bi-weekly: ½ of the payment is sent every other week), you'll actually be making one extra mortgage payment per year with money you have not already counted on having.

Pssst: Wondering how much you'll save by making an extra mortgage payment? Use this handy calculator to find out for your own situation.

You better believe that will pay off mortgage faster!

Examples: Let’s say you make $3,000 per month (we will assume 25% tax bracket), and your monthly mortgage payment is $1400.

  • Paid Weekly: If you are paid weekly, then your paycheck is approximately $562.50. You could time your mortgage to be paid weekly, making ¼ of the full payment each week, or approximately $350 per week. At the end of the year, you will have made a total of 52 ¼ mortgage payments (totaling 13 payments), and have paid an extra $1,400 of your mortgage.
  • Paid Bi-Weekly: If you are paid bi-weekly, then your paycheck is approximately $1,125.00. You could time your mortgage to be paid bi-weekly, making ½ of the full paycheck every other week, or approximately $700. At the end of the year, you will have made a total of 26 ½ mortgage payments (totaling 13 payments), and have paid an extra $1,400 of your mortgage.

Pro Tip: Do extra mortgage payments go towards the principal? This is a really, really, important question, especially if you're going to be sending in extra payments. Make sure you call your mortgage provider and find out the answer, plus how to get around the money going towards interest rather than towards principal (yes, it does make a difference).

Want to send in an extra payment each year, but not set up the tech to do it? Read the next hack.

Mortgage Hack #4: Create Your Own Shorter-Term Refinance (but skip all the paperwork and closing costs)

If you and/or your spouse are paid on a weekly or bi-weekly schedule, then you will have at least two extra paychecks per year.

You'll want to use these extra paychecks to manually send in one extra mortgage payment per year, which will significantly shorten the amount of time you'll pay on your loan (so, sort of like doing your own refinance to shorter terms).

  • Paid Weekly: There are 52 weeks in the year. If you divide 52 by 12, you will see that it is not an even 4. This means that not every month has four weeks. Most months do; however, several months out of the year have more than four weeks. This means that in at least two months during the year, if you are paid weekly, then you will receive an extra paycheck. Those extra paychecks are what you want to use to send in your extra mortgage paycheck.
  • Paid Bi-Weekly: There are 52 weeks in the year, meaning that if you are paid bi-weekly, you will receive 26 paychecks instead of the 24 paychecks people who are paid bi-monthly on specific dates will receive. Use those extra paychecks to send in that extra mortgage payment.

Mortgage Hack #5: House Share 'til It's Paid Off

Do you have a crazy mortgage payoff goal? I've got an easy way for you to meet it: house share until your mortgage is paid off.

My aunt does this, and it's enabled her to live in a beautiful area of Washington D.C. for over 20 years (not to mention in a beautiful home).

You can find roommates, or floor-mates, and sign one year leases with them. Or, you can post an extra room on a site like AirBnB.com. Not into the roommate thing? You can also post areas of storage on sites such as StoreatMyHouse.com.

Send all of your extra money from the rent into your mortgage lender on top of the normal mortgage payment. Then when the mortgage is paid off, you can decide if you'd like to renew your lease agreements when they're up, or not.

Mortgage Hack #6: Get Rid of Your PMI and Keep Sending the Payment in Anyway

Are you paying Private Mortgage Insurance on your home?

This isn't something that insures you in the event of loss; it insures your lender in the event that you default on your loan and potentially go through foreclosure.

The monthly cost is typically $50-$200 (it's a percentage of your overall mortgage loan amount), and you are assessed this fee if you have certain types of loans or if you put less than 20% down on your home when you purchased it.

Wouldn't you rather get rid of this and keep sending in the extra payment to take off the principal of your home?

If you've had work done on your home, or your house value has risen in the area, then you can get a lender-approved appraisal to show that your loan-to-value (LTV) ratio is now below 80%. Or perhaps you've been paying on your home long enough that you have put enough equity into it to take the PMI off.

Discuss with your lender how much more it will take on your particular loan to have the PMI removed. Then once it's removed, send in the same payment you are accustomed to anyway (ensuring the lender takes the extra off of the principal), and shave a few years off of your mortgage repayment period.

Pssst: one more bonus strategy. Decrease your insurance premiums (homeowner's) to drastically cut expenses, and then put that extra cash directly onto your mortgage payment.

Early Mortgage Payoff Strategies for Future Homeowners

Not a homeowner yet? Great!

You may not think it's great that you're not (especially if you're swooning over properties on MLS.com and Pinterest-DIY renovation projects), but this means you can set yourself up for mortgage success and sidestep some of the common pitfalls people enter into without knowing it (isn't it nice letting others be the guinea pig sometimes?).

Mortgage Strategy #1: Avoid PMI from the Start

The easiest way to avoid PMI is by making sure you have at least 20% of the cost of the home ready for a down payment. And remember, your closing costs are not typically included in the down payment amount.

So, you need to save 20% down payment plus several thousand dollars for the closing in order to avoid PMI.

Still want to purchase without 20% down? Here's a tip: You can potentially shift the PMI costs onto the seller of the home. By finding a loan that allows prepaid PMI Insurance at closing and then having your seller cover part or all of the closing costs, you will not be responsible for the PMI despite having less than 20% to put down. Another option is to go for a VA loan if one is available to you, as they do not include PMI even if you do not have 20% to put down. (Note: there is an upfront funding fee that is tacked onto these types of loans, so you don’t get away completely unscathed).

Mortgage Strategy #2: Don't Buy Until You Can Afford a 15-Year Mortgage

By taking out a shorter-term loan to begin with, you will be rewarded with a lower interest rate (because you're a lower risk), you will build up equity into your home quicker (in case you move and sell you leave with more of the money you paid into the home), and of course you will get out of mortgage debt about 15 years earlier than the norm.

How to Get Around Fees Associated with Some of These Pay Off Mortgage Faster / Early Programs

Some mortgage lenders will charge you money to set up automatic withdrawals in accordance with your paycheck cycle through a bi-weekly or weekly payment program. I checked with our lender when we owned a home, and fortunately they did not charge a fee.

However, if yours does, then don’t worry – there’s generally a way around paying it. There’s also a way to set this up even if your mortgage lender does not offer a bi-weekly or weekly payment program.

Here are a Few Alternatives:

  1. Set-up an Account to Catch the Extra Payments: You can automatically withdrawal ¼ of your mortgage payment from your weekly paychecks, or ½ of your mortgage payment from your bi-weekly checks into an account where you will pay your mortgage from. Then once a year, send in a lump sum extra payment to your mortgage company. Be sure to notify your mortgage lender that this payment is to be taken off of the principal loan amount, and not applied towards interest.
  2. Manually Send in Extra Payments in the Extra-Paycheck Months: You can simulate a bi-weekly or weekly payment program by manually writing an extra check to your lender in the extra-paycheck months and designating the payment to be applied to the principal loan amount.
  3. See If You Can Send Bi-Weekly 1/2 Payments or Weekly ¼ Payments without Enrolling: It is possible that your mortgage company will permit you to consistently send in half and quarter payments without signing onto their program. You'll need to ask.

Should You Pay Off Mortgage Early or Invest?

We all have a limited about of money to work with.

So, naturally, we want to know the best way to use this limited resource to get the most “bang for our buck”.

That's why my husband and I – and you – have started to ask ourselves “should you pay off mortgage early or invest the money?”

Some reasons we've discussed for why you should pay off your mortgage early: 

  • Debt freedom: We would be TOTALLY debt free – we became debt-free in 2010 except for the mortgage, which we paid off in 2020 after selling our home.
  • New Monthly Cash Flow: We calculated that paying off our mortgage early would open up a monthly cash flow of approximately $900/month for us (“only” $900/month because we still would have needed to save up to pay our annual insurance and property taxes).
  • It's Guaranteed: When you invest your money, there is no guarantee you won't lose some of the money you invested. Stock markets go up and down, right? But when you pay off your mortgage, the money does the work with a guarantee. You come out of it being able to subtract the amount paid off from your liabilities, and your net worth increases. Period.

Some reasons we've discussed for why we should invest the money instead: 

  • Stock Market Returns Could Be Greater than Our Interest Rate: We were fortunate to have an interest rate on our mortgage of just 3.5%. That's pretty low, as far as the mortgage rate history goes. Is it possible that we would've earned more than a 3.5% return on our money if it was invested in the stock market? Yes, it was definitely possible.
  • Tax Write-off: I don't agree with this one, and honestly we didn't pay enough mortgage interest to get the tax write off, anyway. But I'll throw it out there. If you pay enough in mortgage interest, then you can take a mortgage tax deduction on your tax return to help offset the costs.
  • Prepayment Penalties: You need to check with your mortgage company to see if they'll slap any prepayment penalties for paying off your mortgage early.

Pssst: here is much more information + a calculator to figure out whether you should pay off your mortgage early or invest the money. 

Is Paying Off Mortgage Early Lump Sum or by Monthly Payments the Smartest Move?

Finally, I'd like to share a reader question I got several years ago.

“I have a question for you. In paying down a mortgage, is it better to make a one lump sum payment of $5,000 once a year or better to break the extra payment up into monthly payments of $416.67? I was having this conversation with my boss, and he informed me that you pay down your principal a lot faster when you break the payment down to a monthly principal payment. Any help is appreciated. Thanks.” – Helen

I ran the numbers to see if what her boss said (to break the payment into a monthly principal payment) would help in how to pay off mortgage faster.

Putting the $5,000 down in one, yearly, lump payment will save you more interest over the course of the loan than if you made additional monthly payments of $416.66 until you reached the total of $5,000 each year.

Using Bankrate’s mortgage calculator, I ran the two different scenarios on the following assumptions: $100,000 mortgage, 5.5%, 15 years, first year of the mortgage, with a typical monthly payment of $817.08 ($358.75 towards principal and $458.33 towards interest each month).

One year after making a $5,000 lump payment (on top of the typical monthly mortgage payments), your loan amount will be $90,326.86. Spreading that lump sum of $5,000 over a year into $416.66 in additional monthly payments will have brought your loan amount down to $90,456.90 at the end of that same year. This is a difference of $130.04 in only one year, and on a “small” mortgage, so the actual savings could be more substantial over the life of a larger mortgage loan.

Of course your overall interest savings also depends on where you are in your loan. If you are in year 14 of 15, then you will not have much savings at all. This calculation was done in year 1 of a 15 year mortgage loan, with the lump sum being made in the beginning of the year. This means that in this scenario, your interest saved will continue to increase over the 14 year term left on the loan.

You've got some options for how to pay off your mortgage faster. Whenever your last mortgage payment is – whether that's 2 years from now, or 25 years from now – don't forget to celebrate it! What a milestone that is for all of us.

Don't forget to celebrate that last mortgage payment, whether you get there in 2 years, or 15!

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Amanda L. Grossman is a writer and Certified Financial Education Instructor, Plutus Foundation Grant Recipient, and founder of Frugal Confessions. Over the last 13 years, her money work has helped people with how to save money and how to manage money. She's been featured in the Wall Street Journal, Kiplinger, Washington Post, U.S. News & World Report, Business Insider, LifeHacker, Real Simple Magazine, Woman's World, Woman's Day, ABC 13 Houston, Keybank, and more. Read more here.

Myron

Thursday 14th of July 2022

Here is a simple way to pay off the mortgage early if you can afford it. Plus you have to add less money each month. Take the principal + interest normal payment and add an additional amount for what that months interest is. So you pay the same amount each month but since interest is going down fast your additional payment is declining. Here is an example. If your mortgage is $1500 of interest and principal say 1st month is 750+750. You would pay the $1500 and add $750 additional. The next month it might be $755 + $745 so you would add $745 and continue with this until paid in full and each month you have to apply less to the additional payment. It is painful early but well worth it.

Amanda L Grossman

Monday 18th of July 2022

Awesome mortgage early-payoff strategy, Myron. Thanks so much for sharing!

Laura

Thursday 5th of June 2014

Thanks for that! My fiance and I are closing on a house at the end of July and are excited. I definitely agree with what you are saying, but for us the 30-year mortgage is the only option (no PMI, though). I would rather take that out than give away the rent money every month. Our plan, though, is to put any extra money (above and beyond emergency savings, retirement savings, wedding fund, and child(ren)'s fund) into the mortgage in hopes of making it more like a 20-year mortgage. The interest rate at 3.75% definitely does not deter from that.

Amanda

Friday 6th of June 2014

Congratulations on your new home! That's great that you won't have PMI (puts you ahead of many others right there), and also a great interest rate. Good luck to you both:).

[email protected]

Monday 2nd of June 2014

I have thought about house sharing. Sure, it would help me pay off my mortgage that much faster, but do I really want to let someone into my house for an entire year? I just don't see that going well (personally). I'll use the peace and quiet to get more work done and make up the funds some other way. ;)

Amanda

Tuesday 3rd of June 2014

It's definitely a personal choice, for sure! My Aunt loves the community she's surrounded herself with, so for her, it's worked out well.