How paying off your mortgage early can lead to financial freedom

Before you start

Before implementing a plan to pay off your mortgage early, check with your lender to ensure there are no prepayment penalties or other reasons to stick with your original timeline. If your lender doesn’t allow prepayment, you could consider refinancing.

n addition, it’s probably a good idea to discuss options with your tax accountant or certified public accountant (CPA). For most people, the mortgage interest deduction is one of the most impactful tax deductions available, so paying off your mortgage ahead of time could have tax implications to consider. Get together with a financial professional to develop strategies to offset this impact.

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Make a larger down payment

If you don’t have a mortgage, but plan to get one, the best way to ensure an easier and faster payoff is by starting with a larger down payment. It may take you a few months or even years to save the money, but it’ll be worth it in the long run. Don’t forget to conduct a home loan comparison to ensure you’re negotiating the most favorable terms.

Refinance for better terms

If you have a 30-year mortgage or haven’t applied for a mortgage, consider a 15-year mortgage instead. While your monthly payments will be larger, you’ll pay off the loan in half the time and pay far less in interest over the life of the loan. However, be careful not to overextend yourself by taking on a monthly mortgage payment that’s too large for your budget.

Compare an adjustable-rate mortgage to a fixed-rate mortgage to find out which is the best option for you.

Pay biweekly

A time-tested trick is making 26 half-payments each year rather than 12 full payments. You’ll end up with an extra yearly payment applied to your principal. It could allow you to pay off your mortgage 11 years early and save you thousands in interest payments.

Some mortgage companies won’t process additional payments, but you can still set aside the money and apply it to your principal on a consistent basis. Enter your spending in a budget template to set up a savings plan and use a timeline template to track and visualize your progress.

Make an extra payment quarterly or yearly

If your compensation includes bonuses, you may earn additional money at intervals throughout the year. You also might get a tax refund.

When you earn more than your regular salary, consider putting the additional funds into an extra mortgage payment applied directly to the principal. Ask your lender for an updated loan amortization schedule to see how these payments affect your long-term payoff.

Examine your budget

Even if you follow a budget, you can still use a budgeting template to track your expenses and think ahead to truly optimize your spending. Making small adjustments over time can add up to big savings you can apply to your mortgage principal.

Consider a side hustle

If you have special skills or extra time, you might want to start a side business to increase your income and dedicate those funds to your mortgage payoff. Brainstorm various ways you can apply your skills on a part-time basis. Online tutoring, freelancing from home, or running errands for senior citizens are just a few of the ways you could earn hundreds of dollars per month towards extra principal payments.

Downsize

It sounds extreme, but downsizing could result in an earlier mortgage payoff. Look at the current equity value in your home and consider whether you could find a smaller home for that amount. If so, you could be debt-free in the time it takes you to sell your current home and pay cash for a new one. Or sell your existing home and use the money to make a sizeable down payment on a smaller home. You’ll free up extra income to pay off the smaller home faster.

Imagine what your life would be like without a mortgage payment. Decide if paying it off early makes sense for you, put together a plan, and start working towards more financial freedom.