How I shaved five years off my mortgage with one simple strategy

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The idea of ​​paying off a home mortgage can seem like a point so far in the future that it may never exist, especially with many mortgages stretching over the course of 30 years.

While some financial professionals say you shouldn’t rush into paying off your home and instead prioritize other financial goals, there are still a few steps you can take to drastically reduce the length and cost of your mortgage.

When I bought my first home in January 2022, I made it my goal to pay it off within a shorter timeframe than 30 years – and the only real way to do that was to put more money into it.

Shortly after buying my home, I found out I could make biweekly payments toward my mortgage rather than just paying it once a month. By making this small adjustment I was able to shorten my 30-year mortgage repayment term to one of roughly 25 years – this will allow me to save more than $ 40,000 in interest along the way.

Here’s how making bi-weekly mortgage payments, along with a few other strategies, can help you pay off your home quicker.

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How biweekly mortgage payments can save you money

By making biweekly mortgage payments, you’ll be making a payment towards your mortgage every two weeks instead of once a month. But how does doing that save you money?

With a traditional repayment plan, you’d pay once a month, meaning you’d make a total of 12 payments over the course of one year. With a biweekly repayment plan, you’d pay every two weeks, meaning you’ll end up making 26 payments over the 52 weeks in a year.

By paying your mortgage on a biweekly schedule, you end up putting a bit more cash towards your mortgage over the course of a year than if you paid on a monthly basis. Paying every two weeks slightly speeds up the repayment process and lessens the ability for interest to accrue. So in the end, you’ll not only end up saving tens of thousands of dollars in interest over the life of your loan, but also shorten the amount of time it would take to pay off your home in full.

For example, lets say you have a $ 400,000, 30-year mortgage with a 4% interest rate. By paying monthly, you’ll pay $ 1,910 per month or $ 22,920 over one year. With a biweekly plan, you’ll pay $ 955 every two weeks, which totals $ 24,826 throughout the year.

Here’s the difference in total interest you’ll pay on that $ 400,000 mortgage, depending on your repayment schedule. With monthly payments, you’ll pay $ 287,478.03 in interest over the entire 30 years. However if you switch to biweekly payments, you’ll pay $ 242,371.40 in interest and will shorten your repayment period to just 26 years. Your net savings would be $ 43,809.11 and four years off the mortgage if you paid on biweekly.

To get started with this type of repayment plan, talk to your lender about enrolling in biweekly payments. Note that some lenders do charge borrowers to do this, so make sure you ask about any associated fees and weigh those against the potential savings. You’ll also want to check with your mortgage lender to see if they charge any prepayment fees or penalties.

Other ways to pay down your mortgage faster

For some, becoming debt-free is the ultimate financial goal and paying off a home mortgage can be a huge milestone. If making biweekly payments doesn’t suit your financial needs, consider one of the following strategies:

1. Rounding up

If your mortgage payment is an odd number, a relatively easy way to shorten your mortgage lifespan without financially stressing your budget is to round up with your payment.

For example, if your monthly payment is $ 2,730, consider rounding it up by $ 70 to $ 2,800. Just making that small addition will end up saving you thousands in interest over time and cut your mortgage repayment time down.

2. Charge yourself more in an investment account

If you have a bit more patience and enjoy investing in the stock market, you could take that round-up and instead put it toward an investment in a taxable brokerage account through a brokerage such as Vanguard or Fidelity.

For instance, if you were to take that same $ 70 a month from the example above and invest it in an S&P 500 index fund over 25 years, assuming an 8% annual average return, you would have $ 61,108. That’s over $ 43,000 in gains from $ 21,000 in contributions.

After a certain amount of time, you could withdraw your investment gains and use it to make an additional large mortgage payment. Keep in mind, however, that the gains from selling stock are taxable.

3. Refinance when you can

If you purchased a home with a high interest rate or have paid down a significant portion of your mortgage, it could make sense to refinance. Although rates have been rising rapidly as of late, it may be worth chatting with a mortgage lender such as Chase Bank, Ally Bank, PNC Bank or SoFi to see what your options would be if you wanted to fast-track your paydown.

Chase Bank

  • Annual Percentage Rate (APR)

    Apply online for personalized rates; fixed-rate and adjustable-rate mortgages included

  • Types of loans

    Conventional loans, FHA loans, VA loans, DreaMaker℠ loans and Jumbo loans

  • Terms

  • Credit needed

  • Minimum down payment

    3% if moving forward with a DreaMaker℠ loan

SoFi

  • Annual Percentage Rate (APR)

    Apply online for personalized rates; fixed-rate and adjustable-rate mortgages included

  • Types of loans

    Conventional loans, jumbo loans, HELOCs

  • Terms

  • Credit needed

  • Minimum down payment

For example, if you aggressively paid down your home within the first few years of a 30-year mortgage, you may be able to refinance into a 10- or 15-year mortgage with a lower monthly payment and interest rate, or even eliminate any private mortgage insurance, or PMI, costs you may have as a result of paying less than 20% as a down payment.

Pro tip for paying down your mortgage quickly

If you’ve been paying more than the monthly minimum payment for a few years, it might be worth looking into mortgage recasting, which essentially spreads the remaining balance out over the remaining term of your loan, giving you more payment flexibility. My loan servicer charges $ 300 to do this, so be sure to run the numbers to see if doing this would be worth it.

Bottom line

Editorial Notes: Opinions, analyses, reviews or recommendations expressed in this article are those of the Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.

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