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How much can you save by paying off your mortgage early?

Paying off your mortgage ahead of schedule could save you big bucks.

Paying off your mortgage early — even by just a few months — can help you whittle these numbers down and, in many cases, save serious cash. Are you looking to shave some time (and interest) off your mortgage loan?

Paying off your mortgage early — even by just a few months — can help you whittle these numbers down and, in many cases, save serious cash. Are you looking to shave some time (and interest) off your mortgage loan?

Klaus Vedfelt/Getty Images

Most people get mortgage loans that last 15 to 30 years. And while those lengthy terms can help you spread the costs of your home purchase out and make your monthly payments more affordable, in the long term, they often equate to a significant amount paid in interest.

The problem’s compounded when you have a high interest rate — which may be the case if you bought your home in late 2022 or sometime this year.

Fortunately, paying off your mortgage early — even by just a few months — can help you whittle these numbers down and, in many cases, save serious cash. Are you looking to shave some time (and interest) off your mortgage loan? Here’s how to do it and why it can help.

Why pay your mortgage off early?

The biggest reason to pay off your mortgage loan early is to save money. For example: If you got a 30-year loan of $400,000 at a 6% interest rate last year and made just one $500 extra payment every year, you’d pay off your loan a full year early. It would also save you $22,000 in total interest. 

Paying off your mortgage early can also provide more cash flow and the freedom to put your money toward other goals.

“Once your mortgage is paid off, you have more flexibility to weather life’s setbacks — like losing your job or needing extra funds for a health emergency,” says Robert Johnson, professor of finance at Creighton University and CEO of Economic Index Associates. “It also gives one flexibility to fund other needs and wants — like a child’s college fund, for instance.”

Note: To calculate what paying your mortgage off early could save you, try this pay off mortgage early calculator. Make sure you have your current loan amount, term and interest rate on hand.

How to pay off your mortgage early

Paying off your mortgage early doesn’t necessarily mean paying off your balance in full all at once. There are lots of small ways to make a difference in your loan’s payoff timeline — as well as its long-term costs.

Here are five strategies that can help you pay off your mortgage loan sooner. 

1. Pay more than the minimum each month.

If you have a fixed-rate mortgage loan, your payments are amortized — meaning they’re on a set schedule, with one portion going to the interest costs (your lender) and one toward the principal balance (what you owe). If you can make a payment that’s higher than that scheduled amount, it will go straight to your principal, reducing the balance you owe and what interest you pay in the long run.

“Consider rounding up your payments to the nearest hundred or thousand dollars,” says Shri Ganeshram, CEO of real estate platform Awning.

To see just how powerful this method can be, let’s look at the previously mentioned loan scenario ($400,000 at a 6% rate). In this case, you’d have a scheduled monthly payment of $2,398. By rounding that payment up to $2,500 — $102 more — you could pay off your loan almost three years earlier and save nearly $52,000 in interest.

2. Make your payments biweekly.

Another option is to split your mortgage in half and pay that amount every two weeks. Because there are 52 weeks in a year, this actually comes out to 26 half-payments per year — or one full monthly payment annually. “It can add up over time,” Ganeshram says.

It’s true: In the previous loan scenario, biweekly payments would let you pay off your mortgage five years early and save you almost $89,000 in long-term interest. 

3. Make an extra payment (or two). 

In the same vein, you can also opt to just make an extra payment or two every year. You might do this when you get your tax refund or your holiday bonus, or maybe you use birthday money or just extra savings you have stowed away. Either way, making extra payments can have a big impact on your mortgage costs. 

“You can shave about seven years of interest off your loan making one extra principal payment a year,” says Tanya Blanchard, founder of Madison Chase Capital Advisors. “The more extra principal payments you make, the quicker you will pay off your home.”

4. Recast your mortgage.

If you come into a sizable chunk of cash — maybe from an inheritance or other windfall — you might consider recasting your mortgage. 

“Recasting is when you pay a large sum of money on your mortgage and your mortgage company applies it to your current principal and then recalculates your monthly payment with the reduced principal,” Blanchard says. “Most lenders charge a fee between $250 to $300 to do a recast and require a recast payment of at least $10,000.”

If you want to make even more of an impact, keep making your same original payments — even after you recast your mortgage. This will put even more toward your principal balance each month, shaving extra years — and interest — off your loan in the long run.

5. Refinance.

Depending on what interest rate you have and where current mortgage rates are at, you could also consider refinancing. With refinancing, you replace your mortgage loan with a new one entirely. It can have a different rate, different term or be a completely different type of loan.

“By refinancing to a shorter loan term or a lower interest rate, you can reduce the amount of interest you pay over the life of the loan and potentially save thousands of dollars,” Ganeshram says. “Just be sure to consider the costs of refinancing, including closing costs and fees, to determine whether it makes sense for your financial situation.”

Keep the cons in mind, too

Paying off your mortgage loan early can help you free up cash and save you on interest, but it’s not right for everyone. For one, putting too much toward your mortgage could leave you short on funds in an emergency.

On top of this, it may also keep you from putting money toward other, higher-return investments today — while they still have time to grow. 

“Some borrowers mistakenly view the purchase of a home as their chief investment,” Johnson says. “If mortgage payments are so large as a percentage of monthly income that people can’t adequately fund their retirement account or a child’s college education account, then it may be wise to simply pay your mortgage over the normal term of the loan.”

If you’re not sure paying off your mortgage early is the right move for your finances, talk to a financial advisor or mortgage professional. They can give you personalized guidance that can help you make the right decision.

Editorial Disclosure: All articles are prepared by editorial staff and contributors. Opinions expressed therein are solely those of the editorial team and have not been reviewed or approved by any advertiser. The information, including rates and fees, presented in this article is accurate as of the date of the publish. Check the lender’s website for the most current information.

This article was originally published on SFGate.com and reviewed by Lauren Williamson, who serves as Financial and Home Services Editor for the Hearst E-Commerce team. Email her at lauren.williamson@hearst.com.