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3 Reasons to Pay Off Your Mortgage Early

By Maurie Backman – May 11, 2017 at 6:29AM

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Accelerating a mortgage isn't easy, but it can be done. Here are a few good reasons to make the effort.

Signing a mortgage is quite the commitment. Not only are you locked into what could be a sizable monthly payment, but you're also pledging to continue paying that amount every month for up 30 years of your life. And while paying off a mortgage early is easier said than done, here are a few good reasons to eliminate that debt sooner than you technically have to.

1. You'll have less financial stress in retirement

Countless seniors struggle to pay the bills in retirement, so much so that an estimated 25 million of them live below the poverty line. Since housing is one of the greatest expenses seniors face, it stands to reason that taking your mortgage payment out of the mix can make for a more financially secure retirement.

A calculator leans against a tiny house, which is sitting on stacks of money.


Unfortunately, a growing number of seniors are struggling to shake their housing debt. According to the Consumer Financial Protection Bureau, 30% of homeowners 65 and older (roughly 6.5 million people) enter retirement with mortgage debt. Worse yet, Federal Reserve data indicates that 21% of seniors 75 and over remain saddled with mortgage debt. While paying off your mortgage early won't eliminate your housing costs entirely in retirement -- you'll still have property taxes, insurance, and maintenance to deal with -- it will ease the burden at a time in your life when money is limited.

2. You'll free up cash for college tuition

One reason so many households struggle to pay for college (aside from the exorbitant price tag, of course) is that their existing bills don't magically go away by the time those tuition payments come due. But if you manage to pay off your mortgage by the time your kids go off to college, you'll have extra cash on hand to cover those costs.

Freeing up cash for college will help you and your children avoid hefty loans -- loans that countless borrowers struggle to pay off. Last year, the average college grad came away over $37,000 in debt, so if paying off your mortgage early cuts that number significantly, your kids will have a much less stressful start to adulthood.

3. You'll slash your interest costs

Mortgage lenders make money by collecting interest, so the sooner you pay off your home loan, the less it'll ultimately cost you. Imagine you have a 30-year, $300,000 fixed mortgage at 4% interest. Now let's say that 10 years in, you make an extra $10,000 payment toward your principal. That move alone will save you close to $12,000 in interest -- money that go a long way toward retirement, college, or whatever other purpose you choose to use it for.

Ways to knock out your mortgage debt sooner

While paying off your mortgage early might seem appealing in theory, it's a harder feat to accomplish in practice. But if you're willing to make the effort, here are a few tips that'll help you eliminate that debt sooner:

  • Make biweekly payments instead of paying once a month. If you take your typical monthly payment, divide it in half, and pay that amount every two weeks, you'll wind up making what amounts to one additional monthly payment each year. Once you factor your new payment schedule into your budget, you'll come to stop missing that extra money, and you'll enjoy a faster payoff and loads of interest savings.
  • Apply your bonus to your mortgage. Whether you get an annual performance bonus or the occasional unexpected windfall, one of the best ways to use that newfound cash is to make a lump sum payment toward your mortgage balance. This way, you'll save on long-term interest costs without having to reconfigure your budget to accommodate the extra payments.
  • Refinance for a more favorable rate. Perhaps your credit wasn't so great when you first applied for your home loan. Trading in your old mortgage for one with a more favorable rate can lower your payments, which means you can use the extra money to pay down your loan's principal. Now one thing you should be aware of is that refinancing to a new loan with the same term (meaning, trading in one 30-year loan for another) will actually reset the clock on your mortgage, thus extending the number of years you're making scheduled payments. If you're going to go this route, you'll need to compensate by ramping up those extra payments significantly.

One final thing: While paying off your mortgage early can open the door to major savings and give you more financial flexibility to meet different goals, make sure your loan doesn't impose penalties for prepayment. While most mortgages don't penalize borrowers for paying off their debt early, some do, so it's important to weigh your prospective savings against the fees you'll be charged. 

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