3 Ways to Pay Off Your Mortgage up to 15 Years Early

by Christian Hudspeth

Imagine paying off your 30-year fixed mortgage five, 10, or even 15 years early.

If you were 30 when you took out your home loan, you could be mortgage-free by 45, freeing up an extra $2,000 to $4,000 each month you could use to pay for your kids' college, seriously pad your retirement plan, or even take some well-deserved vacations. If you started your mortgage at age 45, you could pay off your home in time to enjoy a debt-free retirement and the financial freedom to do things you've always wanted.

The very idea is enough to give a warm, fuzzy feeling to even the most cynical among us. Not only is this dream possible, it's far more achievable than you might think. Here's how to pay off your mortgage years ahead of schedule without breaking the bank.

1. Pay Extra Toward Your Mortgage Principal

One of the easiest ways to pay off your home loan early is to put more money toward your principal every month or even just once per year. Don't worry, it doesn't take much to shave years off your mortgage term.

Let's say I took out a $300,000, 30-year fixed-rate mortgage with a 5% annual percentage rate (APR) two years ago. If I were to pay just $170 extra per month on top of my regular mortgage payment and asked my lender to apply it to the principal, I could shave five years off the loan's term and save $52,114 in interest charges versus if I had just kept making my normal mortgage payments for 30 years.

Or, if I were to pay an extra $450 per month toward the principal, I could have my home paid off 10 years early while saving $101,343 in interest charges. Or, if I were really ambitious and wanted to polish off my mortgage 15 years early, I could start putting $950 extra toward my principal each month to save a whopping $146,180 in interest charges over the term of the loan. (Find out how fast you could pay off your home loan by using our mortgage calculator.)

You can see how extra principal payments for a $300,000, 30-year fixed-rate mortgage at 5% APR can make a big difference in what you pay over time in the table below:

Extra Payments Can Make a Big Difference

Payoff Schedule Monthly Payment (PI) Amount You'd Save
in Interest
Normal, 30-year Plan $1,610 N/A
5 Year Early Plan $1,780 $52,114
10 Year Early Plan $2,060 $101,343
15 Year Early Plan $2,560 $146,180
*Assumes 30-year fixed-rate mortgage for $300,000 at 5% APR. Monthly payment does not include property tax, insurance, or closing costs.

Need some ideas on how to raise extra cash to pay off your mortgage sooner? Sell some of your things at garage sales or on Amazon/Ebay. Invest your full tax refund every year into your mortgage balance. Or consider applying the potentially hundreds of dollars in cash-back rewards you could earn from a cash-back credit card toward your principal.

No matter what your mortgage situation is, the earlier and the more you start paying extra toward your mortgage principal, the faster you'll pay off your mortgage and the more money you'll save in interest charges over the long term.

2. Refinance into a Lower Interest Rate Mortgage

Has your credit score improved since you took out your last mortgage (especially if it's now above 740)? Or have you talked with friends only to realize you didn't get very good APR on your home loan? Fear not -- today's historically low interest rates offer a possibly once-in-a-lifetime opportunity to refinance and save thousands in interest charges while paying off your home loan years earlier.

Let's say you took out a $300,000, 30-year fixed-rate mortgage at 7% APR around 10 years ago. After making regular monthly payments of $1,995 for 10 years, you now have a balance of $257,437 and 20 years left to pay on the loan.

After shopping around, you find a lender happy to refinance your mortgage at 4% APR for 20 years, plus closing fees. Using a loan interest calculator to compare your current loan to the new one, you would find that refinancing would lower your monthly mortgage payment by $435 -- from $1,995 per month to $1,560 (not including insurance, property taxes, or closing fees).

A quick refinance calculation also shows you would save a staggering $104,395 in interest charges versus if you had kept making normal payments on the 7% APR 30-year fixed mortgage.

Refinance into a Lower Rate Mortgage for Big Savings

Interest Rate (APR) Monthly Payment (PI) Total Interest
over Life of Loan
Current 30-Year Mortgage 7% $1,995 $218,449
Refinance after 10 years into a 20-year Mortgage 4% $1,560 $114,053
Difference (Savings) $435 $104,613
*Example assumes the original mortgage was 30-year fixed-rate for $300,000 at 7% APR.

Refinancing alone would save you money. But if you were to then take that $435 per month in savings from this example and apply it toward your principal each month on your newly-refinanced mortgage (i.e. pay $1,995 per month again instead of $1,560), you would be able to pay off your home 14 years from now instead of 20 -- or six years early!

3. Refinance into a 15-Year or 10-Year Fixed-Rate Mortgage

Are you taking home more income than you were when you took out your last mortgage? It's hard to think of a better way to pay off your home loan up to 15 years sooner than by refinancing into a 15-year fixed-rate mortgage.

While it's sometimes true that 15-year mortgages need larger payments than their 30-year counterparts, that's not always the case -- especially if you've been paying on your mortgage for several years. You should also consider the fact that 15-year mortgages typically come with extra-low interest rates (usually around 0.5% lower than their 30-year cousins).

Let's say you took out a $300,000 mortgage 10 years ago at 7% APR and now have $257,437 and 20 years left to pay on it. Your mortgage payment is around $1,995 (not including insurance or property tax). Here's a look at some options you could take:

Refinance into Shorter Term and Lower Rate Mortgage for Even Bigger Savings

Interest Rate (APR) Monthly Payment (PI) Amount You'd Save
in Interest
How Fast You'd
Pay Off the Mortgage
Keep Current 30-Year Mortgage 7% $1,995 $0 0 Years Early
Pay 10 Years, then Refinance into 15-Year Mortgage 4% $1,904 $136,038 5 Years Early
Pay 10 Years, then Refinance into 10-Year Mortgage 4% $2,606 $166,029 10 Years Early
*Example assumes a mortgage of $300,000 at 7% APR and owner refinances after 10 years when the balance reaches $257,437.

As you can see from the table, if you were to refinance to a 15-year fixed-rate mortgage at 4% APR, your monthly payment would actually go down to $1,904 per month (not including insurance and taxes). That would lower your payments by $90 per month with the added benefit of paying off your house five years sooner. Not bad!

Want to pay it off even faster? If you chose to refinance your $257,437 mortgage balance into a 10-year fixed-rate mortgage at 4% APR, then your monthly payment would rise from the original $1,995 to $2,606 (not including insurance and taxes). Yes, that's $611 more per month than you're currently paying in this example, but you get to pay off your home a full decade sooner. That's 10 years where you could be pocketing almost $2,000 every month -- $24,000 per year -- instead of paying your lender. I don't know anyone who wouldn't take that tradeoff!

Your dream of becoming mortgage free years or even decades early is not farfetched, especially if you combine these strategies with the 4 Savings Tips Mortgage Lenders Don't Want You to Know. If you already have a mortgage with a competitive APR, then consider paying as much as you can toward your principal as soon as you can.

Alternatively, if you're in a position to take advantage of a lower interest rate, then refinancing your mortgage could be an easy way to save tens or even hundreds of thousands of dollars in interest charges while paying off your home years sooner than you ever imagined.

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