How to Pay off Your Home Mortgage Early

If you have a 30-year mortgage, you could be tripling the total cost of your home. Mortgage interest typically accounts for two-thirds of the total amount that we pay for our homes. Sometimes it can seem rough to pay off a mortgage early, but it can be very profitable, too. In many cases, by paying just a few hundred dollars more per month, you can shave decades off the total term of your mortgage. Over time, you could save tens or even hundreds of thousands of dollars. By paying off your mortgage early, you could also avoid the trouble and expense of refinancing. This option is best if your mortgage loan is small or if the interest rate is already very low.

Things You'll Need

• Itemized mortgage statement
• Mortgage calculator

Instructions

1. Find the current balance on your mortgage. Get out the last statement that your mortgage company last sent you or check the balance on their website. Also check your current monthly mortgage payment and your interest rate. Find the amount that you're paying for escrow each month.

2. Subtract your mortgage escrow from the total mortgage payment. This is the amount you're paying for principal and interest on your mortgage each month.

3. Navigate to a website with a free mortgage amortization calculator. Type in the balance on your loan, the interest rate and the number of years in which you would like to pay it off. Make a note of the monthly payment the calculator recommends to pay off your mortgage early. Subtract the mortgage principal and interest amount you calculated in step 2 from this recommended monthly payment. This is the amount you will need to pay, in addition to what you are already paying.

4. Add your escrow payment to the monthly figure the mortgage calculator recommended. This is the total monthly mortgage payment you will have to make to pay off your mortgage in the time frame you want.

5. Take a look at your monthly expenses in relation to your income. See if there's enough extra money each month to cover the additional mortgage payment. If there isn't, see if there's any place that you can cut back expenses. Try cutting back on eating out, driving less to reduce your gas bill, cutting back on convenience foods at the grocery store, making your home more efficient to save on electricity or shopping less often. Also, see if you can make a little extra money on the side. Take a second job in the evenings or on weekends, or find a legitimate work-at-home opportunity such as doing data entry or writing for the web.

Tips & Warnings

• If your mortgage loan has a very high principal balance or interest rate, you may be better off refinancing your loan. Contact a mortgage company in your area to see if you're a candidate for refinancing.

• Check with your mortgage company to see if they have any penalties for paying off your loan early.

• If you have an adjustable rate mortgage (ARM), you will need to recalculate your early payment schedule on a frequent basis.

Resources

• Free mortgage amortization calculator