Guide
How to pay off your mortgage faster
A mortgage is usually the biggest debt a household carries, and the interest on it can rival the price of the house itself. The good news is that small, steady changes can remove years from the schedule. Here is how the main strategies work.
1. Add a small extra payment every month
Extra money goes straight to principal. On a $350,000 loan at 5.25% over 25 years, an extra $200 a month shortens the mortgage by roughly three and a half years and saves well over $40,000 in interest. The earlier in the loan you do it, the larger the effect, because interest is highest at the start.
2. Switch to accelerated bi-weekly payments
Paying half the monthly amount every two weeks gives 26 half-payments a year - the same as 13 full monthly payments instead of 12. That one extra payment a year is quietly applied to principal. Ask your lender whether their "accelerated" option is truly half the monthly payment, because some are not.
3. Use lump sums wisely
Tax refunds, bonuses and gifts can be used for prepayment. Many lenders allow annual lump-sum payments of 10-20% of the original balance without a penalty. Read your contract: some loans charge a prepayment penalty, especially in the early years or on fixed rates.
4. Choose a shorter amortization when you can afford it
A 20-year mortgage costs more per month than a 30-year one but far less in total interest. If you cannot commit to the higher payment, keep the longer term and make voluntary extra payments instead - you keep the flexibility to stop if money gets tight.
5. Compare rates when you renew
A difference of half a percentage point sounds small, but over a large balance it adds up to thousands of dollars. When your term ends, shop around, and ask your current lender to match the best offer.
Before you prepay: check the big picture
Paying down a mortgage is a guaranteed, risk-free return equal to your interest rate. But keep an emergency fund first, clear higher-interest debt such as credit cards, and think about retirement savings that come with an employer match. A balanced plan beats an all-in plan.
This guide is general information, not financial advice. Check your own loan terms and talk to a qualified adviser.