How to Pay Off Your Mortgage Early: 4 Options to Consider

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Paying off your mortgage may seem like an enormous task — but it doesn’t have to be. 

Small changes to your budget and payment strategy each month can shave years off the loan, saving you thousands of dollars. And at the end of your mortgage, you’ll own your house outright.

There are a few different ways you can pay off your mortgage early, ranging from a simple change to your regular mortgage payments to more complicated and expensive options like refinancing. While paying less interest and owning your house sooner may sound tempting, whether or not paying off your mortgage early makes financial sense for you ultimately depends on your personal financial situation and goals. You’ll always want to crunch the numbers to see if it’s really worth it.

Here are four ways to pay off your mortgage sooner — and how to decide which one is right for you.  

4 Ways to Pay Off Your Mortgage Early

1. Change Your Payment Schedule From Monthly to Biweekly

Making biweekly, instead of monthly, payments is a way to pay down your mortgage faster without having to make a big payment. It’s simple math: A monthly payment schedule is 12 months of payments per year. A year has 52 weeks, so a bi-weekly schedule would be 26 payments (or 13 months of payments) per year. That’s one extra payment a year.

Let’s assume you have a $200,000 mortgage with a 30-year term and a 4% interest rate. Your monthly payment would be about $955, resulting in $11,460 paid toward your mortgage over the course of a year. A bi-weekly payment of $477.50 may seem like the same thing (and most months, it is), but multiplied by 26, that’s $12,415 toward your mortgage (an 8% increase). That extra payment goes purely toward the principal — meaning you’ll pay off the loan four years faster and save $22,366 in interest.

Many lenders will allow you to make the switch, but some don’t offer the option and some charge fees, which isn’t worth it, says Ilyce Glink, CEO of Best Money Moves and author of “100 Questions Every First-Time Home Buyer Should Ask.” “Every month, you can do the same thing by taking the cost of one or two extra payments, divide by 12, and add that amount to your monthly mortgage payments,” Glink says.

2. Refinance Your Mortgage

Now is a great time to refinance if you have a good credit score. Mortgage refinance rates are at historic lows because of emergency moves intended to stimulate the economy. With an excellent credit score, you could get your mortgage refinanced to as low as 2% APR. “It’s almost like free money,” says Glink. You can also refinance a 30-year mortgage to a 15-year mortgage, which may increase your monthly bill but would ensure you pay less in interest over time. 

Keep in mind that refinancing will require replacing your existing mortgage. By refinancing, you will have to pay closing costs that could account for 1 to 2% of the amount of your loan. Make sure you do the math to confirm what you save over time exceeds the closing costs.

3. Recast Your Mortgage

If you have a low interest rate already, you may want to consider recasting your mortgage. Recasting is when the lender recalculates your remaining monthly payments after you make a lump-sum payment (typically $5,000 or more) on the principal. It’s an adjustment to your existing mortgage, whereas refinancing requires getting a new mortgage. 

Recasting won’t decrease your interest rate, so refinancing is ideal if you want a lower rate. But recasting is a cheaper process (costing $200 to $400) and won’t be dependent on your credit score.

Let’s use the previous example to illustrate the benefits of recasting. Say you have a $200,000 mortgage with a 30-year term and a 4% interest rate. Five years in, you decide you want to recast your mortgage with a lump sum of $10,000, which incurs a one-time $300 fee. Over the next 20 years, your monthly payment would decrease from $957 to $925, and you would save a total of $6,359 in interest over the remaining lifetime of the loan.

4. Make a One-Time Payment Toward the Principal

You don’t have to stop at making your regular payments. If you receive extra cash, whether through a side hustle, inheritance, or selling an item, you can put it toward the principal on your mortgage. Homeowners with VA and FHA loans may find this option appealing, since those loans can’t be recast. Extra payments can shed months off your loan — just make sure your lender is crediting the payments toward the principal and not interest.

Can You Pay Off Your Mortgage Early?

If you have some extra cash on hand, there are several ways to make extra payments to your loan. However, you should always check with your lenders about their policies when it comes to paying off your mortgage early.

“If you do decide to go this route, make sure your mortgage doesn’t have prepayment penalties,” says Lisa Phillips, real estate investor and author of “Investing in Rental Properties for Beginners.

Prepayment penalties are fees lenders charge you for paying off your loan early. Though they have been largely phased out of the industry since the Great Recession, some lenders still charge them. Prepayment penalties are typically disclosed at closing alongside the amortization table. Before making any drastic moves to your mortgage, Phillips suggests calling your lender to confirm if you’re subject to a prepayment penalty. “You cannot assume it isn’t there,” she says.

Should You Pay Off Your Mortgage Early?

Everyone has different priorities and savings goals, so whether it’s worth paying off your mortgage early will depend on your personal financial situation.

If you cannot comfortably afford to make extra payments, you should not do so. Saving some money in interest on your mortgage won’t do you much good if it means you can’t pay your other living expenses. Before you make any extra payments towards your mortgage, first make sure your other financial bases — like an emergency fund — are covered.

Even if you can afford the extra payments, it’s worth considering if your money may be better used elsewhere. For example, you may find it more worthwhile to pay off high interest debt, or invest the money in the stock market. Depending on your mortgage interest rate, other options may save (or earn) you more money in the long run. 

If you want to pay off your mortgage early by refinancing, there’s an extra factor to consider: how long you plan to stay in your house. Generally, you’ll need to stay in your house for a few years after a refinance in order for the money you save on interest to make up for the closing costs. And if changes in the market or your personal financial situation make it so that you can’t get an interest rate that’s equal to or lower than your original rate, you may not save money with a refinance at all.