Smart strategies for shaving years off your mortgage payments

Ready to own your home free and clear? Take a look at steps that can help you get there faster.

Yahoo Homes
Paying off your mortgage can happen sooner than you think. We talked to the experts to find out exactly how you can accomplish this goal in less time.
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Paying off your mortgage can happen sooner than you think. We talked to the experts to find out exactly how you can accomplish this goal in less time.

Even though paying down a mortgage is more satisfying than forking over a monthly rent check to your landlord, mortgage payments can still be a drag. But those payments don’t have to be a part of your life forever.

“While having a mortgage is a smart financial decision, it can be a great feeling to own your home free and clear,” says Barry Habib, chief market strategy officer at Residential Finance.

And if you think having a paid-off mortgage is a rare occurrence, think again.

“Thirty-four percent of homeowners don't have a mortgage loan against their home,” says Habib.

Itching to join the club? If you’re already daydreaming about what you could do with all that extra room in your monthly budget (take a ski vacation, send a child to college, buy a sailboat, to name a few), take a look at which steps experts recommend for eliminating your mortgage payments as soon as possible.

Set a Deadline for When You Want To Have Your Mortgage Paid Off

Richard Whitman, vice president of mortgage services at Texas Trust Credit Union, notes that homeowners should set a deadline for when they want to actually pay off their mortgage.

Whether it's in 15 years or 20 years, he suggests homeowners pinpoint when they want to have their mortgage paid off, and then calculate how much extra money they’ll need to pay a month in order to reach that goal.

For example, if a homeowner has a $150,000 mortgage with a 30-year fixed-rate term and an interest rate of 5 percent, Whitman notes that the monthly payment would be $805.23.

“If the goal was to pay off their mortgage in 20 years, they could simply pay an additional $185 each month,” he says. The homeowner would’ve paid off the mortgage a decade sooner - not to mention all of the savings in interest they would see by employing this strategy.

[Want to save on your mortgage? Contact a lender to discuss your savings options now.]

Use the "Dollar a Month" Strategy

If you're on a tight budget but still want to pay off your mortgage faster, then the one dollar plan might work for you. You can probably find an extra dollar simply by flipping over your couch cushions, so it’s likely not as intimidating for you to imagine adding an extra dollar to each month’s budget.

If you simply contribute one extra dollar to your principal each month, it can make a big difference in shortening your loan term.

In fact, Nationwide Bank uses the following example on its website:

If you’ve got a $150,000 30-year fixed rate loan with an interest rate of 6 percent, you’ll be making $900 monthly payments. However, if you commit to adding a single dollar to your payment each month - $901, then $902 the next month, then $903 and so on for the entire life of your loan - then you’ll pay off your home eight years faster.

Refinance to a 20-Year Fixed Rate

You may have taken out a 30-year mortgage because the payments on a 15-year were just too high for what you could afford. And rightfully so, since Habib notes that most 15-year payments are around one-third higher than a 30-year payment.

But, Habib recommends that homeowners consider taking advantage of a frequently overlooked option that can help cut down the length of your mortgage: the 20-year mortgage. He points to the following numbers for a $200,000 loan:


  30-year fixed 20-year fixed
Interest Rate: 4.37 percent 4.12 percent
Monthly Payment: $998  $1,224
Balance after 7 years: $173,500 $147,900
Balance after 20 years: $96,900 $0
Total Interest Paid:  $159,273  $93,915

Securing a 20-year fixed-rate mortgage in this example would mean paying an additional $232 per month (or only $58 each week). But, that's a small price to pay to own your home free and clear a decade sooner, and save more than $65,000 in interest!

Refinance to a Lower Rate, but Maintain the Same Monthly Payment Amount

If you can refinance to lower your interest rate, that's great - especially with rates currently on the rise. And while you might be thrilled that your monthly payments are lower as a result of a lower rate, it may actually be to your benefit to maintain your old monthly payments prior to the refinance.  

 Joe Parsons, senior loan officer at PFS Funding and writer at The Mortgage Insider, notes that this is a great way to use refinancing as a tool to pay off your mortgage quickly.

 He gives the example of a homeowner with a 30-year fixed rate mortgage of $300,000 who refinances to change his rate from 6 percent to 4.17 percent - the average on June 27, 2013.


  Original loan Refinanced loan
Interest Rate   6 percent 4.17 percent
Monthly payment $1,798  $1,461
Pay-off date  May 2043  July 2034

However, if you continued to make the $1,798 payment on your refinanced loan, you could pay off your loan by July 2034. By using this strategy, the homeowner could actually pay off his house nine years and two months faster.

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