How to Pay Off Your Mortgage Early

Paying extra on principle, over and above your monthly mortgage payment, can shorten the term of your mortgage and save you potentially tens of thousands of dollars in interest.

One popular way to do this is to set up a biweekly mortgage payment schedule. Instead of paying your mortgage payment once a month, you pay half your payment every 2 weeks. By doing so, you end up making 26 half payments or 13 full payments a year instead of 12, which is what you would make normally. A 30-year mortgage is amortized over 360 payments – 12 payments a year for 30 years. By making one extra payment a year, you speed up your loan’s amortization, shaving more than 9 years off your mortgage and a whole lot of interest.

Your lender, however, may not offer a biweekly payment plan or charge you a fee to set up such a schedule. Not to worry. Instead of paying a fee, you can accomplish the same outcome yourself by simply paying extra on principle each month. Many mortgage services already have a line on their invoices where borrowers can indicate an extra amount to be applied to principal.

The benefit of setting up a formal biweekly payment plan is that it provides the discipline many borrowers need. On the downside, it also locks you into a higher payment schedule that you might not be able to keep. There may be months when the cash flow is tight or there are unexpected expenses that prevent you from making an extra mortgage payment. Some people need the discipline of a formal payment schedule. If you don’t, better to keep the option open, and pay extra every chance you get. Either way you’ll accomplish the same end: shortening your mortgage term and saving interest.

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