To turn a 30-year mortgage into a 15-year payoff, you can refinance to a 15-year loan, make significant extra principal payments (like the $200/month example for ~5 years shorter), switch to bi-weekly payments (extra payment yearly), use windfalls for lump sums, or recast the loan, with each strategy focusing on paying down principal faster to save interest and shorten the term.
How to Pay Off a 30-Year Mortgage Faster
If you've ever wanted to cut the length of your mortgage in half to get you on the right track to paying off your home loan as fast as possible, you can do that by refinancing from a 30-year to a 15-year mortgage. Your monthly payments will be higher, but don't let that scare you!
By making 2 additional principal payments each year, you'll pay off your loan significantly faster: Without extra payments: 30 years. With 2 extra payments per year: About 24 years and 7 months.
Drawbacks of Recasting
If the interest rate is particularly high, recasting is a bad option. Mortgage recast also reduces overall liquidity as contributed funds are tied up in the home equity. Borrowers wanting the cash may either need to sell their homes or use home equity financing.
If you'd like to keep your current interest rate and have the lump sum put toward your principal, a recast is a better fit. However, if you'd like to adjust your rate, shorten your repayment term, exchange some of your equity for cash, or all of these, refinancing is the better option.
How to pay off mortgage faster: 6 proven strategies
Here are some ways you can pay off your mortgage faster:
If you pay $100 extra each month towards principal, you can cut your loan term by more than 4.5 years and reduce the interest paid by more than $26,500. If you pay $200 extra a month towards principal, you can cut your loan term by more than 8 years and reduce the interest paid by more than $44,000.
When you prepay, you are lowering the interest you owe, which could alter your taxes. Another downfall is if you decide to move. You would have paid extra money without getting the rewards of living mortgage-free.
The "2 rule for refinancing" usually refers to the 2% interest rate rule, suggesting you should only refinance if the new rate is at least 2 percentage points lower than your current one to recoup closing costs quickly, but this is just a guideline, as a 1% drop can be worthwhile, especially if you plan to stay in your home long-term or want to switch to a fixed rate. Another "2 rule" involves the 2-year review, recommending you check your home loan every couple of years to ensure you're not overpaying, as rates and your financial situation change.
Paying an extra $1,000 a month on your mortgage significantly cuts down your loan term and saves you tens to hundreds of thousands in interest by reducing the principal faster, as interest is calculated on the remaining balance. This strategy works best when applied directly to the principal, often accelerating payoff by years, though you should check your lender's rules for fees and limits on extra payments, especially on fixed-rate loans.
The premise is simple: pay an extra 10% of your monthly mortgage payment toward the principal each week, which can allow you to pay off the loan in approximately 15 years while lowering the amount paid toward interest.
Step one, save $1 000. Baby step two, get out of debt everything but your house using the debt snowball. Baby step three, save three to six months of expenses for a fully funded emergency fund. Baby step four, invest 15% of your household income into retirement.
While the possibility of job loss can trigger financial panic, Orman advises against rushing to drain your savings to pay off your mortgage early. Even if you have enough money saved to wipe out your mortgage, don't pull the emergency cord until absolutely necessary.
By paying more than your required monthly mortgage payment, you can put that extra money directly toward the principal amount on your loan. Your interest payment is based on your principal balance, so by applying your extra payment to your principal, you could pay less in interest over time.
Ignoring the Impact on Your Long-Term Finances
An early payoff can feel appealing, but it may shift resources away from other priorities. Extra payments reduce your balance faster, yet they also use cash that could support other financial goals, such as retirement contributions, debt reduction and savings goals.
Pay extra toward your mortgage principal each month: After you've made your regularly scheduled mortgage payment, any extra cash goes directly toward paying down your mortgage principal. If you make an extra payment of $700 a month, you'll pay off your mortgage in about 15 years and save about $128,000 in interest.
15-Year vs.
By choosing a 15-year mortgage over a 30-year mortgage, you could save more than $200,000 in interest over the life of the loan—even though your monthly payments are higher. That's because you're paying off the loan faster and at a lower interest rate, reducing how much interest builds up over time.
The "2% rule" for mortgage payoff refers to two different strategies: aiming to refinance to a rate 2% lower than your current one for significant savings, or adding an extra 2% of your monthly payment to pay down principal faster, potentially saving years of interest and paying off the loan much sooner. Another related method is the bi-weekly payment (paying half your monthly bill every two weeks), which adds up to one extra payment a year, significantly shortening the loan term.
Increasing your monthly payments, making bi-weekly payments, and making extra principal payments can help accelerate mortgage payoff. Cutting expenses, increasing income, and using windfalls to make lump sum payments can help pay off the mortgage faster.
Peters explains that the biggest potential downside to an early mortgage payoff is what's called opportunity cost. “If you use extra cash to pay off your mortgage ahead of time, you may miss out on opportunities to invest that money and potentially earn a higher return, especially in a strong market,” he says.
The benefits of paying off your mortgage
The biggest reason to pay off your mortgage early is that often it will leave you better off in the long run. Standard financial advice is that if you have debts (such as mortgages), the best thing to do with your savings is pay off those debts.
If your mortgage rate is higher than the interest rate on those investment assets—which could be the case for many borrowers as interest rates remain high—you'd be better off paying down the mortgage than investing the money.