How To Pay Off Your Mortgage Sooner Without Refinancing

By Sunwook Jin, CFP®, CRPC®, CMFC®

When you took out your mortgage, you probably intended to make regular payments for the full term.  However, you could pay off the mortgage much sooner without refinancing.

You can do this by making extra payments that can go toward your loan’s principal balance.  It can help you pay off your loan more quickly, and reduce the amount of interest you pay for the life of the loan.  When you make your monthly mortgage payment, a portion covers interest and the remainder pays down the principal.

MORTGAGE PAYMENT = PRINCIPAL + INTEREST

At the beginning of the loan, the majority of the monthly payment pays for interest and pays down very little of principal.  However, more of each of your payment pays down the principal.

Here is an example: $250,000 loan with 5% annual interest for 30 years. (monthly loan payment of $1,342.06)

  • Payment #1 – $1,342.06 = $1,041.67 of interest + $300.39 pay down of principal
  • Payment #2 – $1,342.06 = $1,040.42 of interest + $301.64 pay down of principal
  • Payment #360 – $1,342.06 = $5.55 of interest + $1,336.51 pay down of principal
  • Summary
    • Loan Paid Off after 360 months
    • Paid $483,141 for the life of the loan ($1,342.06 X 360 months)
    • Paid $233,137 in interest

If you want to pay off your mortgage more quickly without refinancing it to a short-term, you can do one of three options.

Option 1: Pay extra each month

Paying an extra $500, $200 or even $10 per month can cut down your loan term and reduce the total amount of interest you pay.

Option 2: Make payments every two weeks

When you make payments every two weeks, you’re making the one extra monthly payment a year.  26 bi-weekly payments equal 13 monthly payments.

Option 3: Make a single big payment

If you are not able to make extra payment monthly or every two weeks, you may want to make a lump sum payment whenever you have the funds available (from a tax refund, inheritance, bonus, etc.)

Here is another example using Option 1: $250,000 loan with 5% annual interest for 30 years. (monthly loan payment of $1,342.06 + $119.42 extra monthly payment)

  • Payment #1 – $1,461.48 = $1,041.67 of interest + $419.81 pay down of principal
  • Payment #2 – $1,461.48 = $1,039.92 of interest + $421.56 pay down of principal
  • Payment #300 – $1,461.48 = $6.05 of interest + $1,455.43 pay down of principal
  • Summary
    • Loan Paid Off after 300 months (reduced it by 60 months or 5 years)
    • Paid $438,444 for the life of the loan ($1,461.48 X 300 months)
    • Paid $188,441 in interest

Get the Financial Advice and Services You Need

Simply complete this form and a financial advisor will contact you shortly to provide answers to your financial questions.