Takeaways
- Mortgage payments make up the largest part of American household budgets.
- Mortgage debt balances in 2024 reached $12.5 trillion and continue to grow.
- Mortgage-free households can start investing in stocks, bonds, or crypto.
- The most popular mortgage term and structure is a 30-year-fixed rate mortgage.
- Paying off your mortgage can be done dramatically with large cash payments or by consistently chipping away at your balance.
You finally made it. You scraped together your down payment, paid the closing costs, and moved into your new home. Now, all that is left is to pay off your mortgage.
While owning your home is one of the quickest ways to boost your overall net worth, paying off your mortgage can feel intimidating. After buying a first home, many people feel strapped for cash and that becoming mortgage-free is an unreachable goal. However, the data suggests otherwise over the long term. According to a recent survey, approximately 39% of homes in the U.S. are mortgage-free.[1]
If you can learn to pay off your mortgage, you can eliminate one of the most significant liabilities you will face in your lifetime. And the market for higher mortgage balances keeps growing. According to the Federal Reserve, the mortgage balance in the second quarter of 2024 was $12.5 trillion.[2] Savers, investors, and financial independence evangelists still tout the benefits of paying off your mortgage and owning your home outright.
With smart money moves, motivation, and sustained effort, you, too, can eliminate your mortgage. Let’s explore ways you can implement debt-reduction strategies, maximize bonus payments, and leverage existing mortgage products to reach that financial goal.
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7 Ways to Pay Off Your Mortgage Fast
There are many methods to trim down your mortgage over time. Some ways work faster than others; you can adopt one or more strategies over time. Here are seven ways to pay off your mortgage quickly:
1. Biweekly Payments
One highly effective and relatively popular way to pay off your mortgage faster is to make biweekly payments instead of monthly payments to your lender. With this approach, you only pay half of your total monthly mortgage payment, but you pay it twice per month or every two weeks.
Biweekly payments may not make a significant difference at first. However, what you are doing is effectively making 26 “half-payments”’ over the year, which in total is equal to 13 full payments. Therefore, you make an extra payment each year that can be applied to your principal. Implementing this strategy can shave six to eight years off your mortgage.
Learn More: What Is an Adjustable-Rate Mortgage?
On top of that, biweekly payments help reduce the total amount of interest you pay over the life of the loan. Since you reduce your loan’s principal balance each time you make a monthly mortgage payment, the total interest charged on the loan becomes lower, saving you money and getting you out of debt faster.
2. Extra Monthly Payments Each Year
Another way to make quicker work of your mortgage is to pay an additional payment each year. If you might want to put a dent in your principal but don’t have a stable income to consistently make biweekly payments (maybe you are a freelancer). In that case, you can pay more principal each month or schedule a time each year to commit to making a full extra principal payment. Once you do this for the first time, the benefits will be hard to ignore.
Let’s turn to an example. If your existing monthly mortgage payment is $1,200, you could make monthly payments of $1,300, and the extra $100 each month over the year would lead to an additional $1,200 worth of principal being paid off. Alternatively, you could commit to making an extra $1,200 payment each year in January.
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Earn more income with a side hustle or a top freelance job. Putting your extra income into paying off your mortgage will speed up the process.
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3. Put Cash Windfalls to Your Principal
This might not be what you want to hear, but if you get a raise at work, receive an unexpected bonus, or get a cash gift from relatives, consider allocating a large portion of it to paying down your mortgage.
Even “smaller” financial windfalls – cash gifts, modest inheritances, or cash from selling unused items – can add up over time. Every time you pay your principal, no matter how large, you get the automatic benefit of paying less interest over the life of the loan.
One of the biggest advantages of this strategy is the incredible degree of financial flexibility it provides. These one-time or periodic payments do not require committing to an extra monthly payment or altering your mortgage contract (more on this below). Plus, they can give you an immediate and predetermined route for using newfound cash. Implementing this strategy can help curb excessive spending or compulsive buying.
4. Rounding Your Mortgage Payment Up
Rounding your monthly mortgage payment up to the nearest hundred or thousand is a psychological trick that helps you pay off your mortgage quickly. You can leverage technology to automate your finances and keep your rounded mortgage payment consistent.
For example, if your mortgage is $1,825 and you round it up to $2,000, you are sending an additional $175 to chip away at your principal balance. If things are tight, consider rounding up to the nearest $20, even the nearest $10.
The rounding-up strategy can be used to accelerate your mortgage repayment without feeling like you are putting undue financial strain on your budget. Once you acclimate to your new payment amount, you may forget you even did it.
5. Refinance to a Lower Interest Rate
Refinancing is one of the most common ways to lower your monthly mortgage payment and pad your pockets with cash. Refinancing works by paying off an old mortgage with money from a new mortgage.[3] Most homeowners opt to refinance their mortgages when interest rates are declining, and they can get a new mortgage at a lower interest rate.
Smart Tip:
The U.S. Federal Reserve sets the federal funds rate, which determines mortgage rates. These rates affect credit cards, personal loans, car loans, and other credit products.
Refinancing helps you lock in lower rates during declining interest rates, decreasing the amount of interest you pay over the life of the loan. This can save you thousands of dollars in interest payments that you can now put toward your principal payment.
If you maintain your original mortgage payment amount post-refinancing, the lower interest payment will help you repay the loan faster. One caveat, however, is that refinancing does involve fees and closing costs. If those costs are too high, they might outweigh the eventual savings. So, make sure to do a cost-benefit analysis. For most homeowners, however, if the rate spread is large enough, it is usually a financial win.
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6. Recast Your Mortgage
Mortgage recasting is another strategy to help you repay your home loan faster. A mortgage recast involves paying a large lump sum toward your principal balance. Once you make the minimum required large payment (usually $25,000 or more), your mortgage lender recasts your new principal balance and loan term, reducing your monthly mortgage payments.
Recasting is different from refinancing. You keep the same loan structure, interest rate, and term when you recast your mortgage. The benefit, of course, is that you lower your principal balance with a large lump sum payment. Recasting can turn an expensive mortgage into a highly affordable payment.
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The fees for recasting your mortgage are much lower than refinancing, making it a more cost-effective option. Many mortgage providers charge only a few hundred dollars to recast your mortgage. That said, not all lenders will offer this service, so read the fine print on your mortgage documents or ask your lending agent if you are in the homebuying process and shopping around for a mortgage. Being able to recast is an option you want to keep.
Lenders who allow mortgage recasting often cap the number of times you can recast your mortgage (usually only one time). If you can come up with the cash, recasting can quickly lower your mortgage payment and reduce your principal balance.
Read Also: How Much Cash Should You Have in Your Savings Account?
7. Convert to a Shorter-Term Loan
In many cases, converting your mortgage to a shorter-term loan can help you pay it off much quicker. An example of this would be working with your lender to switch from a 30-year fixed-rate mortgage to a 15-year fixed-rate mortgage.
The downside of converting it to a shorter loan term is that you contractually commit to paying off your mortgage faster, which means your monthly mortgage payments will increase. Before you commit to a shorter term, ensure you are financially prepared to handle larger mortgage payments. Refer to your monthly budget to ensure you can easily manage this higher payment.
The upside of converting to a shorter loan term is that they carry less risk than an equivalent longer-term loan. As a result, mortgage providers charge lower interest rates. Switching to a shorter loan term will decrease the total interest payments paid over the life of the loan. Instead of spending money on interest payments, you can focus on paying off your principal faster.
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If you have the wiggle room in your budget to safely take on a higher ongoing monthly payment, converting to a shorter-term loan can be a wildly effective way to become mortgage-free.
Smart Summary
Buying your first home can be an incredibly satisfying experience. A disciplined approach to paying off your debt with a commitment to remaining financially savvy can give you the wherewithal to pay off your mortgage faster than you think. Debt-free evangelists, like the financial independent, retire early (FIRE) movement, routinely make the case that implementing smart money moves can drastically change your financial outlook. Paying off your mortgage might be the perfect move, depending on your financial situation.
You Might Also Like:
(1) Axios. Share of Mortgage-free Homes in the US. Last Accessed January 13, 2025.
(2) Federal Reserve. Household Debt and Credit Report. Last Accessed January 13, 2025.
(3) ConsumerFinance.gov. Should I Refinance? Last Accessed January 13, 2025.
