Making payments on a mortgage for 30 years can seem like forever, especially when you look at your monthly statement. Not only do you see your huge outstanding balance, but you also see how your $1,000 monthly payment only knocked $125 off of it! Frustrating times for sure. But there are little known ways to pay off your mortgage fast.
In fact, I highlight 10 such ways below. You can pick out the one that suits you best, or find a way to combine multiple tips to pay off your mortgage even faster. Imagine not having a mortgage payment any longer. What would that enable you to do?
You could put more towards retirement. You might even be able to retire early since you no longer have a huge monthly bill hanging over your head. Or you could find a job that you love, regardless of pay. After all, by slashing your mortgage out of your budget, you could earn less, be happy doing something you love, and still get by financially.
What are we waiting for? Let’s get started learning about these little known ways to pay off your mortgage fast!
10 Ways To Pay Off Your Mortgage Fast!
#1. Use Tax Refunds
According to the IRS, the average refund for 2016 is a whopping $3,053! I’m not going to get into the debate about getting such a large refund here, but I am going to show you the power of this refund.
Let’s say you just bought a house and took out a loan for $200,000 at 5% interest for 30 years. You pay the balance due every month except for May, when you make an additional one-time extra payment of $3,000 which is your tax refund. What effect does this have?
If you do this for just 5 years, you will shave off 4 years off your mortgage and save almost $38,000 in interest! Do this for 10 years and you knock off close to 7 years and save $58,000 in interest!
I know it can be tempting to spend your tax refund on something else, but if you can put all of it, or even a good chunk of it towards your mortgage, you will save a ton of money.
#2. Bi-Monthly Mortgage Payment
The next way to pay off your mortgage early is to create a bi-monthly mortgage payment system. A bi-monthly system takes your monthly payment and cuts it in half, so that you pay every other week, or twice a month.
The idea behind this is that there are 26 weeks in a year, so instead of making the normal 12 monthly payments, you are actually making 13, since 26 payments of half your monthly mortgage amount equals 13 full mortgage payments. You end up making one extra payment each year.
Some banks offer to do this for you but they charge a set up fee and some even charge ongoing fees. You can skip the fees and do this yourself. But, don’t simply mail in half of your payment every other week. The bank won’t process it that way. They will wait until they received your full payment amount and then process the payment.
Instead, take one monthly payment and divide it by 12. You then pay this amount as extra principal each month for the year.
So let us use the example above of a $200,000 mortgage at 5% for 30 years. Your monthly mortgage payment is $1,074. If you divide this by 12, you get $89.50. Each month you are to pay $1,163.50 towards your mortgage. This total is your regular monthly payment of $1,074 and the additional $89.50.
On your remittance slip you send along with your check, there is usually a line for an additional principal payment. Put the extra $89.50 on this line.
If you pay online, there is usually a place for noting extra principal as well.
Come the end of the year, you will have made one extra mortgage payment, which is the same as setting up a bi-monthly mortgage payment.
By following this technique, you will knock off close to 5 years on your mortgage and will save over $33,000 in interest.
#3. Use Credit Card Rewards
Wouldn’t it be great if you could use credit card rewards to pay down your mortgage faster? You can! We have our mortgage through Wells Fargo and the other day when I was logged into our account, I saw a note about their Home Rebate Card.
For the first six months, you earn 5% cash back on gas, groceries and drugstore purchases and 1% on everything else. After the six months are up, you earn a flat 1% on purchases. The nice thing about the card is that there is no annual fee and that the cash back is automatically transferred to your mortgage principal.
If you don’t have a mortgage through Wells Fargo, you can still do this trick. Here is the process.
- Open up an American Express Blue Cash Card
- Put your groceries and gas on this card since you earn 6% and 3% cash back respectively
- Open up a Capital One 360 savings account
- Redeem the cash back on the Amex card for a statement credit
- Transfer that amount from your checking account to your Capital One 360 savings account
- At the end of the year use this money to make an extra mortgage payment
You make the transfer from checking to savings since you never had to pay for the amount you took a statement credit for. As an added bonus, when you open a Capital One 360 savings account, you can earn a free $25.
If you spend $150 a week on groceries and $50 a week in gas, you would earn $1,950 a year in cash back. Apply this to your mortgage once a year and you knock off over 7 years and save more than $50,000 in interest!
Of course, you don’t want to go into debt when doing this, otherwise the point of paying off your mortgage early is lost. So make sure you are smart about how much you spend with this trick.
#4. Pay Extra At The Start
As I mentioned at the beginning of this post, when you first start making payments on your mortgage, you pay mostly interest. As you move towards the end of your mortgage, you pay mainly principal. The reason for this is that banks want their money back first.
By being smart and paying extra at the start of your mortgage, you can save yourself thousands of dollars and pay off your mortgage faster.
Let’s use the same example from earlier ($200,000 loan at 5% for 30 years), only this time we will make an extra $100 payment each month for 5 years. Doing this shaves off close 2 years of our mortgage and saves close to $17,000 in interest.
If you can afford to put $200 extra towards your monthly mortgage for the next 5 years, you knock off 2 years of your mortgage and save over $31,000 in interest.
And if you can always put $200 extra towards your mortgage, you will pay it off 9 years early and save $61,000 in interest.
When you refinance, you either get a lower interest rate or you shorten the term of your mortgage. Doing this will help you to pay off your mortgage faster and save you money. In some cases, when interest rates drop by a good amount, you can shorten your term and interest rate, and still have the same monthly payment.
If you have more than 10 years left on your mortgage, it might make sense to refinance. You can use the calculator below to see how much you could save by refinancing.
The amount of interest you save and how quickly you can pay off your mortgage depends on your current balance and interest rate and what you refinance for in terms of interest rate and length of the loan.
#6. Pretend To Refinance
The main downside to refinancing is the closing costs. Typically they run around $3,000. You could roll them into your new mortgage, but then you are paying interest on that money as well. You are better off just paying the closing costs out of your pocket and not rolling them into the refinance.
A better option as opposed to refinancing may be to simply fake a refinance. Figure out how much a monthly payment would be on a refinance by playing with the calculator above. Then commit to making that payment every month without actually spending the money to refinance.
For example, let’s use the same numbers, a $200,000 mortgage for 30 years at 5%. You see that a refinance of $200,000 at 3.25% for 15 years would have monthly payments of $1,400. Right now you are paying $1,074 per month.
If you don’t refinance and are 5 years into your mortgage and start paying $1,400 each month, you will pay off your mortgage 10 years sooner and save close to $55,000 in interest charges. That is some serious savings!
The only catch here is that you have to be committed to paying the fake refinance amount and not just your standard payment.
#7. Round Up Payments
Rounding up your payment is also a great little known way to pay off your mortgage. As I mentioned, your current monthly payment is $1,074. What if you rounded up to $1,100 per month? That is just $26 more each month. While you would only knock 2 years off of your mortgage, you would save over $10,000 in interest charges.
I know that a couple dollars doesn’t sound like much, but it makes a difference. On our mortgage, if I pay just $6.85 extra per month, I save over $3,300 in interest over the life of the loan. So don’t think a couple extra dollars isn’t worth it. Put anything extra you can towards your mortgage each month.
What About Supercharging Your Payoff?
What if we combined some of these little known ways to pay off your mortgage? Which two tips sound the most reasonable to use? Let’s combine rounding up along with paying extra at the start of the mortgage. These allow for the most flexibility and will show us what a little extra payment does in the long run.
#8. Paying Extra And Rounding Up
For this example, we will round up $26 each month, plus we will pay an additional $125 each month. So our new monthly payment is $1,225 per month.
With this method, we knocked off about 6 years and saved around $44,000 in interest. Not bad for a small sacrifice. But let’s be honest, you saw the title, little known ways to pay off your mortgage fast, and you want to pay it off fast. So let’s try another combination.
#9. Bi-Monthly And Tax Refund
While the above option is great, here is an even better option. Pay extra each month based on a bi-monthly payment plan and use your tax refund. Simply pay $72 more each month and use your entire tax refund to pay off the mortgage early. If you combine both options, you will get rid of your mortgage in less than 17 years and save around $73,000 in interest.
The only catch here is that a $3,000 tax refund each year is not a given. It could change which could change the mortgage pay off as well.
#10. Destroy Your Mortgage With This Combination
Finally, here is the greatest option. This is for people who want to destroy their mortgage as quickly as possible. To do so, we will use the following approach.
- Use our tax refund. We will assume the average refund of $3,000 but only use half so you can do what you want with the other half. This will also help us in the coming years since a tax refund can change depending on your future financial situation.
- Open cash back credit card. We will assume the $1,950 in rewards each year to be put towards the mortgage.
- Round up. Using the example of $200,000 mortgage at 5% for 30 years, we will round up $26 to an even $1,100.
- Pay extra. Finally, we will put an extra $100 a month towards the mortgage
What is the result of all of this? We will pay off our mortgage 15 years early and save over $90,000 in interest.
How To Pay More Each Month On Your Mortgage
I know, all of these options sound great in theory. The problem though is that you need more money in order to pay extra each month. As it stands now, money is already tight. What can you do to free up some money and pay off your mortgage fast?
You have a handful of options, including:
- Get a second job
- Earn a raise at work
- Start a side business
- Start a blog
- Sell stuff on Craigslist or eBay
- Cut your monthly expenses
If you can do some of these things, you can easily free up some extra money to put towards your mortgage and pay if off fast. And at the very least, you should be able to round up your monthly payment without making much of a sacrifice at all.
If your current payment is $1,005 and you can’t round up $95 to an even $1,100 each month, then just round up $45 to $1,050 or round up $20 and pay $1,025. It may seem like a tiny amount, but it makes a big difference in the long run.
Finally, you can keep track of your progress with Personal Capital. This is what I use to get a quick look at our net worth and investments. By adding my mortgage and house value, I can follow along the pay off process. The reason I do this is for motivation. There are times when you would rather buy something you want instead of putting the extra money towards your mortgage. But then I log into my Personal Capital account, see the progress we made and how close we are getting and it helps to get me excited again. So I highly recommend doing this as well. You can open your free account by clicking here.
So there you have a handful of little known ways to pay off your mortgage. The real key is to combine tips to supercharge your payoff. The more money you can throw at your monthly mortgage payment, the quicker you will pay it off. But even then, it will take time. A mortgage balance is a large amount of money and you can’t pay it off overnight.
But don’t let this deter you. Keep your eye on the goal of paying off your mortgage. Imagine what it will feel like to not have that monthly payment any longer and what you will do with the money instead.
Any little bit extra that you can pay each month not only shaves off the time you have to pay, but it also saves you money in interest charges along the way. And that interest savings really adds up.