The idea of not having a mortgage payment and truly owning my house makes me salivate like a dog standing over a nice medium rare T-bone steak. I’ve been prepaying on my mortgage for a few years to knock some of the interest off and pay my home off early. I’ve taken a very unscientific approach to paying the mortgage off early. I’ve simply added $150 to my monthly payment. This works out to more than an extra payment each year and should help me pay off the mortgage around 7 years early. I fully expect that I’ll use any windfall money to pay down the mortgage with a goal of having the mortgage paid off by the time my daughter reaches college.
If I had the equivalent of my mortgage payment available each month to fund college costs, it would make the prospect of escalating college costs a bit more bearable. So, I decided to run a few scenarios to see what it would take to pay the mortgage off even faster. I used a free online calculator here.
Pay off home in 20 years: Add $150 to each mortgage payment
Pay off home in 15 years: Add $400 to each mortgage payment
Pay off home in 10 years: Add $950 to each mortgage payment
Pay off home in 5 years: Add $2650 to each mortgage payment
These are all rough estimates. Obviously it seems most attainable to pay the rest of my mortgage off in 20 years. $150 doesn’t really impact our budget too much and does save us quite a bit in interest over the length of the loan. Most likely, we’ll be able to pay off our mortgage earlier than 20 years with the investment we are making in our lake house. I fully expect that we’ll be able to sell the lake house within about 5-6 years and use the proceeds to pay off our home mortgage. Just in case we decide to keep the lake house long term, we are going to keep paying an additional $150 towards our mortgage principal each month.
If you own a house, I’d highly recommend checking out the calculator above to see what different scenarios would do to your mortgage.
One other note: I don’t think that the bi-weekly payments offered by most mortgage companies are really that great of a deal. If you could simply sign up for that service at no charge, I’d like it a lot because it automates the whole process of paying additional on your principal. Unfortunately, every program that I have seen so far charges an up front cost of a few hundred dollars and then charges you a monthly fee to stay in the program. Quite frankly I don’t understand why the banks/mortgage companies don’t do this for free. By signing you up for it, they set up automatic payments which reduces the likelihood of late payments etc.
THERE IS A BETTER WAY!
As a Mortgage Broker, I am always keeping my eye on the market and looking at new trends. In my research I have found what I would say is the most revolutionary mortgage I have ever seen in all my time in the finance business. It is the Home Ownership Accelerator. It allows you to pay off your home in half the time or less, than the typical fixed rate mortgage.
Pre-paying your home loan is fine. But what if you have a need for that money sometime down the road. Tuff tooties, because the mortgage company already has your money and they are unlikely to give it back. With an HOA you can access your equity any time you like, without refinancing your loan.
The other nice thing is that you can pay down your home loan without changing your current spending habits. That means you can keep that extra $400 to $2650 a month mentioned, in your pocket and still pay off your loan faster than you could by simply making extra payments.
If you would like to see how it works, go to and click the HOA button and see a video that shows how it works and a calculator that will let you put your own numbers in and see how fast you can pay off your home loan.
Hi, I just read your post about paying off the house. I am reading a book called Untapped Riches, the author argues about for the idea of NOT paying off your house, instead keep the money liquid and invest it, maybe online high interest banks.
He feels that too many people are House Rich and Cash Poor and many would be better off not giving the banks their money and keeping the cash to invest.
He even advocates a 40 year interest only loan, stating that the loans our parents or grandparents took years ago does not work in today’s economy…….interestinng eh?
chris
Yes. I know that is the other point of view when it comes to paying off your mortgage early. (investing instead). I’ve chosen to invest monthly and target my mortgage for payoff. On paper it makes more sense to invest if I can get more than 5.75% interest, although I also have to consider capital gains. I’ve decided that it just makes more sense for us to do both.
The best way to pay off a house is a 5 year fixed interest rate mortgage term, atleast for our family…
Every month, we save a few grand in a 5% savings account… and at the end of the year, we just take 80% of these savings (30-40k) and use it to pay off our mortgage principal… this creates a tremendous reduction in our monthly mortgage payments, which leads to more monthly savings…
Abdul @ Do It Yourself Debt Consolidation Community http://www.3debtconsolidation.com