# Pay Off Your Mortgage Early

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Do you currently have a 30 year mortgage? Have you ever thought about making extra payments to save on interest and reduce the number of years that you’ll need to pay in to the bank? To be completely honest, I think about it every day (and I think it’s driving my wife nutzo!). I can’t stand the thought of throwing my money away, and paying all that interest on a home loan is basically like taking a bunch of Benjamins out of my pocket and hucking them into the trash can (and the bank sneakily opens the secret hatch to add your wad to their money mountain).

How to Avoid Paying All That Interest

If you’d like to pay off your mortgage early, you’ll obviously need to avoid paying the thousands of dollars of interest. It’s pretty common knowledge that one can pay down their house loan faster if they make extra payments, but have you ever stopped to think about why that is?

When you make an additional payment, the bank will typically give you the option of postpone the next payment or to put the money toward the principle. If you are given this option, please please please decide to put the money toward the principle! Here’s why:

• When your additional payment is used as a regular payment for the next month, nothing really changes. Your total amount paid on the house is still just as high as it was before your extra payment.
• If you put your additional payment toward the principle, you’ll never have to pay the interest for that month! It simply vanishes and you suddenly reduce the number of years that you’ll need to pay for that mortgage!

How Much Can The Extra Payment Really Help?

If you’re paying \$1,000 each month, how much could you really benefit by throwing an extra \$100 at the mortgage? It just doesn’t seem like it would have that big of an impact…or will it? Let’s run a few examples with a handy-dandy mortgage calculator.

If you bought your house in July, 2011 and started paying an extra \$100 in March 2012, you’d save \$25,900 in interest and you’d pay off your mortgage in 25.5 years instead of 30! Check out the graph above – the blue line shows the typical payoff schedule, and the green line shows your extra \$100 payments each month. Just think, all you have to do is scrounge up an extra \$100 a month and you could own your home free and clear almost 5 years sooner!

What if you got radical and started paying \$500 extra each month? How soon do you think you’d be able to pay off the mortgage?

By paying an extra \$500 a month, you’d be able to pay off your mortgage in 16 short years, plus you’d save \$74,650 in interest payments! Sounds like it might be worth it to pinch some pennies throughout the month and make those extra payments, huh?

Let’s Get Crazy And Put Even More Money Toward the Mortgage

I know, I know…. you think I was crazy suggesting that you could put an extra \$500 toward the mortgage, and now I’m saying that you should scrounge up even MORE MONEY?? “That’s just not possible,” you might say. “We’re barely making ends meet as it is.”

What if you started a side business (like this website – check out my income reports)? Or, maybe you take on a part-time job at night to get rid of your debt? I bet that would free up some cash for you – maybe even enough to put an extra \$1,500 toward that house loan? Check out the impact this additional payment could have.

By paying an extra \$1,500, you’ll save 21 years and \$110,000!!

You could own your house free and clear after 9 years! Not only that, but instead of paying \$150,000 in interest to the bank, you’d only pay \$40,000! Now that’s a pretty sweet deal, don’t you think?

Do you currently pay extra on your mortgage? After seeing what it can do, are you considering it?

#### AUTHOR Derek

My name is Derek, and I have my Bachelors Degree in Finance from Grand Valley State University. After graduation, I was not able to find a job that fully utilized my degree, but I still had a passion for Finance! So, I decided to focus my passion in the stock market. I studied Cash Flows, Balance Sheets, and Income Statements, put some money into the market and saw a good return on my investment. As satisfying as this was, I still felt that something was missing. I have a passion for Finance, but I also have a passion for people. If you have a willingness to learn, I will continue to teach.

1. For me it’s not worth paying of early. If I were living there or had a great rate or very little pay off it might be worth it but not under my current circumstance.

• Is it your plan to sell it? Is that what I remember?

2. We’re definitely paying off our mortgage early. We recently refinanced to a 30 year mortgage 5 year ARM in an effort to speed that up. We’d have it paid off before the 5 years were up anyway, so I saw no danger in getting the lowest interest rate possible. Prior to that we had a 20 year mortgage though. You’re so right about how much money & time you can save by paying extra on the mortgage — even the littlest bit helps, especially if you haven’t had the mortgage all that long. I entertain myself by playing with various payment amounts in my debt snowball app 🙂

3. I’m with you, I think about my mortgage payoff plan all the friggin time! Started putting extra towards it and then we got amped and wanted to see how far we could push it. Right now we put between \$3-\$4k a month extra towards the principle! I went against the grain a bit and decided to stop contributing to our Roth’s for the next 2 years in order to make this happen. I figure I will be able to put all of the money that I would have contributed plus and gains in the first 6 months of freedom.

• That is a ton of extra money toward your principle! That’s awesome! Let me know when you’re completely debt free. I’d love to have your efforts featured in a post – it would be a big hit!

• I will do that thanks!

4. We don’t pay a lot extra, as right now we are working on my student loans. Hopefully soon we can beef up our payments.

• Ahh yes. Loans most definitely come first. Stay persistant and they’ll be gone soon! Don’t you worry!

5. Personally I think it’s a better idea to take the money you would be paying early towards the mortgage and invest in in some solid blue chip dividend paying stocks. You need to learn how to do some fundamental research to choose these stocks though. If that’s not up your alley you may try investing in index funds. Hard to tell what will happen in the future to stocks so that is the only drawback is it is a little more risky. But the dividends, stock return and mortgage interest deduction combined through the years should put you ahead over the long run. Plus you have the liquidity of just selling off some stock if you have a cash emergency.

• For me, I know that paying off the house early means money in my pocket (savings from interest) – it’s a guarantee! Dividend stocks and index funds are not a guarantee at all. I’ll invest in those later.

• Personal Finance is personal so everyone must decide what is the best option for them. If your more risk adverse and want to be conservative then you definately can’t go wrong paying off the mortgage early. Plus it provides the benefit of forced savings if you don’t have the discipline not to spend the money and invest it. I think either way whether investing or paying off debt early, you will always end up way ahead of the pack!

• Well said! Either way, at least you’re not spending all of your money on new cars and surround sound! 😉

6. Nice graphics. The mortgage will be the last debt I pay off since the interest is so low. Right now, I have other debts to pay, but the overall impact is still the same with the same general graphic shape.

• If there are other debts to pay that are higher – by all means, pay those off. Once you get to the mortgage, you should have a ton of money to pay it down in a hurry!

7. My partner and I had lived in our house for 5 years before taking the Dave Ramsey 13 week class. Boy, did that change our lives!! Combined we make around 90,000 a year. The first year we paid off 30,000 in consumer debt THEN we paid off our mortgage in 13 months…just over 100,000. I took a second job, sold one of our cars, sold ALL our furniture (slept on a air mattress), took the bus to work, did TONS of online surveys, sold tons of stuff on ebay and craigslist. Some months I sent in 30 additional payments to the principle…did it all online with Chase. THERE IS NO FEELING AS GOOD AS HAVING NO PAYMENTS TO ANYONE! Our life has changed in so many ways. We never worry about money. We forget when our paydays are (CRAZY,huh??). Zero money fights. Kind of like….well, no stress at all. Building wealth like crazy!! When you are not paying anyone else, you get to invest…and make money. Good luck all!!

• That’s awesome! I love your story Toni. It is crazy intense. How would you like to write a guest post? My readers would love to hear the whole story for sure.

• WOW! That’s amazing, I am impressed. It’s stories like yours that make me want to kick myself in the pants and get going. I’ve been debating the second job thing as well. I work Mon-Fri and could pick up some extra work on the weekend’s but are there jobs that will work with those restrictions?

• There are plenty of weekend jobs in the hospitality industry. You could wait tables, tend bar, cook, housekeeping at hotels….etc etc… Those types of places love having stead part time weekend help, that’s usually when they are busiest!

• You’re right Tim! I would think that there are plenty of jobs like that just waiting to be had. I think it’s typically a pretty high turnover too, so even if there’s not a job open now, there most likely will be in the near-future.

8. We were paying an extra \$200 on our mortgage until we re-financed last year. The base payment went up \$160, so we’re now paying \$40 less than we were even with the extra payment, and our amount toward pricinple increased by nearly \$400 per month.

• Sounds like a pretty good movie MB! Congrats on making good, sound decisions!

9. I’m throwing just a small amount at our mortgage right now (an extra \$25-50/month). We have a good rate and we also have a huge tax credit to help with our mortgage interest, PLUS the deductible portion.

We aren’t maxing out our Roths right now so that’s my first priority.

• Hey, every bit helps! Good job!

10. Oh and the extra \$25-50 really does have a big impact over the long haul!

• Have you calculated it out? How much do you figure you’ll save in interest?

11. I pay an additional \$100 in principle to make sure I will pay off my mortgage by the time I retire.

• Sounds like you’re the man with a plan! Keep making those extra payments and you won’t be sorry.

12. It’s certainly hard to beat the feeling of living in a paid off home sooner (^_^) But maybe in certain situations it wouldn’t hurt to pay down the mortgage a little slower. I made a post about it yesterday. But I agree with all your points :0)

• If you don’t have a full emergency fund, then I would pay it off a little slower (until it was built up), but for the most part, I think almost everyone would benefit from getting rid of all debt as soon as possible!

13. This was great, Derek! (As if I need a reason to pay off my debt early–I want it GONE!!) I also loved your recent post about paying the mortgage off early versus remodeling. Any chance you could do a comparison on the benefits of paying off a house early versus benefits of paying off student loans early? 🙂

• Oooo, sounds like a new article idea! 🙂 I could probably do that. Although, off the top of my head, I would probably pay off the student loan 99% of the time, then take care of the home mortgage.

14. We do pay extra. We just bought our house in January of 2009. We hope to have it completely paid off in June of 2015. We’ll see if we can keep it up, but I think about it a ton as well – like you – probably drive the wife crazy:)!

• Haha! Yep. If I could have my way (without compromise), I’d pay off our house in 2 years. I think we could do it. We might not have any furniture, and we might be wearing our coats inside in the winter, but it would be paid off. It’s actually a good thing that I have my wife, otherwise I’d have no friends in an empty house with a pile of money that does nothing…. 😉

• Oh! And I like your new comment pic by the way. Very professional! 🙂

15. Derek, good topic (and a very popular one). I have a different perspective as you can see below, but it’s due to my specific situation and goals. Yours is a very factual post for the idea of clearing out that home debt. Nice job!

• Thanks for the kudos BE! I always appreciate your opinion (even if it’s different than mine) because I know it’s well thought out.

16. Great line: “By paying an extra \$1,500, you’ll save 21 years and \$110,000!!”. Wow, its amazing how a few thousand dollars can save you 21 years off your mortgage.

• It is pretty amazing huh?!

17. It’s truly amazing what a difference those extra payments can make. We bought our house with a 35 year mortgage in 2009 – and as of now, it’s down to 20 years. Our goal is to have it fully paid off in 10 more years.

We throw in extra payments regularly, we bumped it up to weekly accelerated payments and we’ve bumped up each payment by an additional \$35. All 3 changes have been hardly noticeable at all!

• You took off 15 years in 3 years. That’s pretty awesome! Congrats!

18. Wow, when I see how much you can save by putting just a few hundred a month extra towards your mortgage it really makes me want to get another job or something! We pay half our mortgage payment every two weeks, so what does that get us? Essentially, one extra mortgage payment per year? For us right now, that’s good – but I’m intrigued by that one guys’ comment about halting ROTH distributions and instead investing in home equity…

• Typically, paying your mortgage every 2 weeks (rather than monthly) will cut 6-8 years off your 30 year loan, so that’s nothing to sneeze at either! As for haulting the Roth contributions, I don’t even get that crazy. My wife and I both still contribute to our company 401(k)s because of the match. It’s a good safety net for our future retirement.

19. I really want to get our house paid off and by 2014 we plan to double our mortgage payment. It will take us until 2014 to get debt free and fully fund our emergency fund. Once that’s done it’s onto the house.

• Sounds like you’ve got a plan Zack – now you just have to stick with it! Don’t forget to budget some fun in there, otherwise you might just go crazy. 😉

20. From my experience I can say, there are financial calculators which show you in detail how to payoff mortgage early. The calculator which I use is ” Smart Loan Calculator Pro ” which is available in app store for 2 bucks. It is awsome. It is not for one time. It is life time useful smart calculator. Give it a try. I guarantee, you would thank me after you download and check it. After checking this, I realized how easy to payoff martgage early.

• Hi Trey. Thanks for the tip, but with all the free calculators out there, I just can’t bring myself to spend any money on a calculator app, even if it is only \$2.

• I totally agree Retta! Paying off my mortgage was an incredibly freeing feeling! Now I’m moving onto the next stage of life – investing, having fun, and giving more!

22. Such a great topic Derek! I’m one of you avid readers on 2012 my husband I decided to start paying off our house. So we did! WE paid our house off this Summer 2016. It was the best thing we’ve ever done! We paid off \$128,000 dollars in 4 years, we put so much extra 2000 dollars or more extra on our principle each month and 4 years of our income tax money we get every year goes straight to our principle! It can happened! People don’t stop, have fun doing it. We cut back in a lot of stuff but didn’t go as crazy! We took vacations to the beach every year and we ate well healthy food. We probably could have paid it off faster but we chose to have life as well and give kids memories in those 4 years. Thank you for motivating us to pay off our house. Now saving up for rentals. Good job Derek.

• I’m always glad that I could be a motivator to others! Nobody I’ve ever talked to was disappointed after paying off all their debt. Congrats to you and your hubby!!

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