3 Tactics to Pay Off Your Mortgage Faster

by Kevin on October 6, 2011

Unless you save up for a decade you probably will be buying a home with a mortgage. Having a mortgage is an acceptable financial decision simply because it would be so long before most of us could buy a home if we decided to pay cash. While having a mortgage isn’t necessarily a bad thing, paying interest for 30 years is a costly decision. Anything you can do to lower your mortgage interest paid by paying the principal down faster is a great financial move.

Pay Off Your Mortgage Faster

Here are 3 tactics you can pay off your mortgage faster than the term you signed up for. These tactics assume you are earning more money than you spend, so you have something left over at the end of every month.

Pay Extra Principal Equal to Your Current Principal Payment

Each time you make a mortgage payment you are really sending in two payments: one for the principal to pay down the loan, and one for the interest of that payment. Someone with a mortgage of $150,000 with a 4.25% rate fixed over 30 years will have a payment of $737.91 every month. Of that first payment, only $206.66 will go toward the repayment of the principal balance. That’s only 28%. The remaining $531.25 is interest for the bank.

One tactic would be to pay additional on your mortgage equal to what the principal payment is. So your first month you would send in a payment of $737.91 (your normal payment) and an additional payment of $206.66. Each time you make a payment the principal payment would adjust higher slightly, so you would start off sending in smaller extra payments and finish by paying big chunks of principal at a time. Your second payment’s principal portion would jump to $208.12. You would need to recalculate each month, but this tactic would help you pay off your mortgage much faster than your original term.

Pay Extra as a Percentage of Your Interest Payment

Instead of paying an ever-increasing extra amount every month, you might try to send in an additional payment equal to a percentage of your last month’s interest payment. If your first month’s interest from the example above is $531.25, you might start by paying 20% of that amount with your next payment. That would mean sending in an extra payment of only $53.13. The following month you would send in $53.03. How quickly this would impact your mortgage amount depends on how large of a percentage you select.

Pay the Same Extra Amount Every Month

Of course the easiest method for paying off your mortgage is to pick a set amount, build that extra payment into your budget, and set up automatic payments. How much you decide to send in should be based on your budget, and you can always change it in the future to a higher amount. If you consistently had an extra $100 to send in every month you would shave the example mortgage down from 30 years to 23 years and 9 months. You would save $27,416 in interest and cut off 6 years and 3 months of payments.

{ 6 comments }

Golfing Girl October 7, 2011 at 11:32 am

So I guess you changed your mind about the other 4 tactics? I’ve got a few.
–Wait until you have a larger downpayment so you don’t borrow as much
–Get a 15 year mortgage if you can afford the payments (we saved $90K by doing this when we refinanced our $116K balance)
–Buy less house!

Kevin October 7, 2011 at 9:15 pm

Whoops! I always use 7 as a placeholder. I did have a few other ideas, but thought they were more strategies than tactics.

Steve in Denmark October 9, 2011 at 4:54 am

I really can’t see why you should be worried about paying off your mortgage before it’s due. Most lenders will allow for a pay-down anyway – unless you go for an interest only mortgage.
Under normal economic circumstances (where house prices rise), should you need to move, because you want to, or need to because of a larger family/change of work circumstances, etc, your house has increased in value, you have a little extra to play with, put down a larger deposit, etc. At some point before you retire, you should have paid off the mortgage, without having to have made extra payments. Like my parents did.
I see a mortgage as a necessary expense, one you can’t avoid, if you’ve made the choice you want to live in a house – a lot of Danes don’t even have a mortgage, they rent an apartment or a house. I don’t even see it in the amount we earn. I reckon with our earnings AFTER the mortgage has gone out. Over time, it’ll go down as we build up equity (and that you can use, should it be necessary and you have enough). If I paid more into my mortgage it would mean I would have less elsewhere and that I am not prepared to allow.
If the wife says; “Can we afford a holiday?” or; “Can we afford to paint the house this year?” She’s not exactly gonna high-five me if I say; “No. But hey! We’ll have the mortgage paid off in 2025 instead of 2026, dear!”

Mike October 15, 2011 at 7:36 am

These are all good tips. I agree with the other poster. The biggest decision is before you buy.
Buy within your means and you’ll pay it off in no time!

Cindy Marsch October 23, 2011 at 7:56 am

My husband is a professor and has a regular salary from that position, but he also has sometime-self-employment from summer research work and receives that usually as a single big check. I am self-employed and have irregular income as well as regular quarterly income in large checks. We mostly live on his regular salary for the basics and use the additional amounts for educational expenses (homeschooling, private school, college for our four children), gifts, travel, and auto purchases. We have to this point (three in college at the same time last year!) not had enough extra to be able to pay down the mortgage, but we have paid down our last three (used) vehicle purchases within just a few months by assigning those larger lump-sum payments to the debt. It is our hope to begin doing the same with our mortgage in the next couple of years, once we have a healthier emergency fund.

Bottom line: lump-sum income is a great opportunity for paying down debt!

Mathieu Lebrun November 23, 2015 at 9:52 pm

Great post! Thank you for sharing. I’d like to hear more from you.

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