Making payments on a mortgage for 30 years can seem like forever, especially when you look at your monthly statement. Not only do you have to make 360 payments and have a huge outstanding balance, but you also see how your $1,000 monthly payment only knocked $125 off of your balance! Frustrating times for sure. But there are little known ways to pay off your mortgage fast.
In fact, I highlight 10 tricks to pay off your house early below. You can pick out the one that suits you best, or find a way to combine multiple tips to pay off your mortgage faster. Imagine not having a mortgage payment any longer. What would that enable you to do?
You could put more money 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.
Or you could use that money to take amazing vacations every year. Just think of all the places you want to visit and experience.
What are we waiting for? Let’s get started learning about these little known ways to pay off your mortgage fast so you can use your extra money for other things!
10 Tricks To Pay Off Your Mortgage Fast
#1. Use Tax Refunds
According to the IRS, the average refund for 2016 was 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 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!
Use this mortgage pay off trick for the entire length of your mortgage and you knock off 10 years and save close to $70,000 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-Weekly Mortgage Payment
The next mortgage pay off trick is to create a bi-weekly mortgage payment system. A bi-weekly 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 half mortgage payments equals 13 full mortgage payments. You end up making one extra payment each year.
Some banks offer to do this for you but they often 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. Most banks won’t process it that way.
They will wait until they receive your full payment amount and then process the payment. In other words, they will sit on the half payment you sent in until you send in the other half. Then they will apply the full payment to your account.
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-weekly 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 off your mortgage faster? You can! We had our last mortgage through Wells Fargo and one day when I 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 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 mortgage pay off trick and pay off your mortgage fast. 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 (if you fund your new account with $250, they will give you $25!).
- 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.
If you spend $150 a week on groceries and $50 a week in gas, you would earn $625 a year in cash back. Apply this to your mortgage once a year and you knock off over 3 years and save more than $20,000 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 when taking advantage of this mortgage pay off 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 your 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.
You can play around with the calculator below to see just 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.
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.
Some banks will offer no closing cost refinancing which can be a great way to save some money. Just be sure to compare their rate to another bank to be certain they aren’t charging you a higher interest rate.
#6. Pretend To Refinance
Because of the work involved with refinancing and the closing costs involved, there is another option to save money and pay off your mortgage fast. It’s called a fake refinance.
Simply 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.
To help with this, you could use a free app. Qapital rounds up your purchases to the next dollar and transfers the money from your checking account to a savings account. You then can put that money towards anything you want. In this case, you would make an extra mortgage payment.
I’ve been using Qapital for close to a year and have saved over $750! When you open your free account, they will give you $5.
How To Pay Off Your Mortgage In Half The Time
What if we combined some of these little known mortgage pay off tricks? Could we cut our 30 year mortgage in half? 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, you knocked off about 8 years and saved around $50,000 in interest. Not bad for a small sacrifice, but we weren’t able to cut a 30 year mortgage in half. Let’s try another combination.
#9. Bi-Weekly And Tax Refund
While the above option is great, let’s combine our tax refund and a bi-weekly payment. 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 knock off 12 years and save around $81,000 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 your mortgage pay off as well.
This gets you closer, but you still aren’t able to pay off your mortgage in half the time.
#10. The Fastest Way To Pay Off 30 Year Mortgage
Finally, here is the fastest way to pay off your 30 year mortgage. In fact, it will allow you to cut a 30 year mortgage in half. 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 $2,000 so you can do what you want with the rest. 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 $1,000 in rewards each year to be put towards the mortgage.
- Round up. We will use Qapital to round up our purchases and transfer that money to our mortgage annually. We will assume $750 in annual roundups.
- Pay extra. Finally, we will put an extra $150 a month towards the mortgage
What is the result of all of this? You will pay off your mortgage 15 years early and save over $98,000 in interest. This is the best way to pay off your mortgage early.
Of this extra amount we are paying each month, you only need to come up with $150. This is because the credit card cash back and the round ups from Qapital are from your spending.
How can you come up with an extra $150 a month?
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 on your mortgage 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?
The simplest solution by far is to take surveys. If you take 2 surveys a day, you could make an extra $100 a month to be used to pay off your mortgage early.
That means you just turn the TV off 30 minutes before bed and take the surveys. Or you take them first thing in the morning. My favorite survey site is Survey Junkie. You can get started with them by clicking here.
What if surveys aren’t your thing? Here are some more ideas to help you free up money to pay off your mortgage early.
- Earn a raise at work. By becoming valuable, you can earn a substantial raise each year.
- Cut your monthly expenses. There are numerous things you can do to lower your bills. And doing so could easily free up a few hundred or thousand dollars to help you pay down your mortgage.
- Become a transcriptionist. It’s easy to get started transcribing and all you need to do is be able to type. You can easily do it from home for a few hours and make a good amount of money.
- Start a side business. You determine how much effort you put into making more money. But with over 50 great ideas, this post has you covered.
- Start a blog. While you won’t be making boatloads of money at the start, running your own website could provide a much larger income than you think is possible.
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.
Just by cutting a few monthly expenses and doing a little work on the side could easily bring in $250 extra each month. It may seem like a small amount, but it makes a big difference in the long run.
If you combine some of the tricks to pay off your mortgage faster and can put this extra $250 you earn towards your mortgage each month, you could pay off your mortgage in 10 years.
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 track 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 to being mortgage free and it helps to get me excited again. So I highly recommend doing this as well.
So there you have a handful of little known ways to pay off your mortgage faster. The real key is to combine tips to supercharge your effort and pay off your mortgage in half the time. 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 extra amount 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.