mortgage loan

by Aidan Kang, CFA
Senior Writer
UPDATED: January 31, 2023

If you're ready to pay off rid off your mortgage loan ASAP, you're definitely not alone. Mortgage loans are the biggest debts that US citizens have and last for an average of 30 years.

While the rewards of a mortgage are definitely gratifying, the long repayment term may be less than desirable when you're trying to be debt free as soon as possible. 

Being debt free can provide financial freedom and give you an opportunity to save more money for your retirement. Additionally, being debt free can help reduce the well-known stress and anxiety that's commonly associated with managing multiple debts.

In this article we'll be sharing with you tips on how to pay off your mortgage faster to enjoy a debt free life. 

Is Paying Off Your Mortgage Faster A Good Idea?

Whether or not paying off your mortgage loan faster is a good idea depends on your financial situation. If you have extra cash and no other urgent and time-sensitive debts that you need to pay off, paying off your mortgage faster is definitely a good idea.

This is because paying off your mortgage earlier can help you save thousands of dollars in the long run by reducing the amount of interest you have to pay on your mortgage loan. Additionally, you'll be able to get a better credit score, have a peace of mind, and even repurpose the money that you save into other funds and investments such as retirement or tuition fees for your kids.

A good way to know whether paying off your mortgage sooner will affect your financial standing is by using a mortgage calculator to evaluate your financial situation. With a mortgage calculator you'll be able to account for your remaining loan amount, mortgage interest rate and loan term to know exactly how much you'll be paying every month if you refinance it.

Drawbacks of Paying Off Your Mortgage Early

While there are many benefits to paying off your mortgage early, there are also drawbacks that you should consider. 

Depending on your reasons for wanting to pay off your mortgage loan faster, consider the following:

  1. Loss of funds: Paying off your mortgage debt early requires using more money than required. This money can be used for other purposes such as building an emergency fund or making investments that may give you a better ROI overall. 
  2. Less tax benefits: As you know, the interest on mortgage loans are tax-deductible. This means that paying off your mortgage early could reduce your tax refunds. The HMID lets homeowners who itemize their deductions on their income tax return deduct mortgage interests paid by up to $750,000 worth of their loan principal.
  3. Limited flexibility: Once you pay off your mortgage, you may have less financial flexibility as you can't borrow against your home's equity any longer if you need to borrow money for other purposes.
  4. Possible pre-payment penalties: When you pay off your mortgage early, you might be charged with prepayment penalties. These penalties are there solely for lenders to ensure that they receive the full amount of interest that they're expecting from the loan. What more, if the prepayment penalty costs more than the interest you would have saved by paying off your mortgage loan early, it cancels out one huge benefit that you would have gained from paying it off. 

Strategies for Paying Off Your Mortgage Faster

Now that you've got a better picture on how paying off your mortgage faster can effect you, let's jump into 8 ways to be mortgage debt free faster!

Refinancing Your Mortgage

Refinancing your mortgage is a good way to lower your interest rate and get a shorter term on your mortgage loan. If you have a 20-year mortgage, you might want to consider recasting it to a 15-year mortgage with better interest rates. To do this, all you have to do is take a new loan term that better suits your mortgage payment goals. Refinancing your mortgage might also be a good option if your salary's increased from the time that you started your loan. 

Do note that there will be additional costs when you refinance your mortgage. These costs can include things like processing costs, closing costs, and other fees. Be sure to compare multiple mortgage loans to get the best bang for your buck and account for all the fees involved in refinancing your mortgage.

Recasting Your Mortgage

Recasting your mortgage will help you to lower your interest payments by making a lump sum payment towards your loan. When you make big principal payments, your mortgage lenders will re-calculate and adjust the remaining amount that you owe for your housing payments. Doing this also shortens your mortgage payment once your remaining balance is adjusted.

Be sure to check with your mortgage servicer before recasting your loan because not all mortgage servicers provide this option. You will also need to find out how much extra money you need to pay towards your mortgage loan to ensure that your payment will make the difference that you want it to.

Making Biweekly Mortgage Payments

If making a huge one time payment on your loan is too heavy on you, consider this biweekly repayment strategy to clear off your mortgage faster.

You make 12 mortgage payments a year. However, if you divide your monthly mortgage payment in half and make a payment every 2 weeks, you'll make a total of 13 mortgage payments every year. That extra mortgage payment that you've created can help you save a ton of money. 

Sounds too good to be true? Check out the scenario below:

If you have a 30-year mortgage of $150, 000 with an interest rate of 4%, your monthly payments would be around $716. If you switched to bi-weekly payments and paid half of your monthly payment every two weeks, that would equal to 26 payments of $358 per year. This is equivalent to 13 FULL monthly payments. By making the extra payment each year, you would pay off your mortgage approximately five years and two months earlier – and you'll save $23,250 in interest fees, all from biweekly payments!

Using Unexpected Income

Whenever we get some unexpected cash flow, our first thought tends to go towards getting something that we've been eye-ing for awhile. However, if you dream of paying off your mortgage faster, you should consider putting this money towards your mortgage's principal balance. 

Implementing the Dollar-a-Month Plan

Another way to pay off your mortgage faster is by implementing the dollar-a-month plan. 

This plan is easy to implement and basically means paying an extra dollar (or more) every month towards your mortgage principal in addition to your regular monthly payments. 

By doing this, you'll pay off more of your mortgage principle and reduce the amount of interest you pay overall. If you do this consistently, your mortgage payment will reduce your regular monthly mortgage cost will decrease. When this happens, you'll free up more money to contribute to paying off your mortgage principal. 

Although the changes to your mortgage will happen gradually with this method, it's a really great way to start paying off your mortgage faster. This is because the amount that you need to add on to your mortgage loan isn't heavy on the wallet and can be done easily.

Choosing a Flexible-Term Mortgage

If you're not already on a flexible-term mortgage, consider switching to a plan like this to avoid penalty fees for making extra payments. 

On flexible-term mortgage plans, your additional payments won't be trimmed due to penalty fees. Most people don't take on this kind of loan because they aren't aware of it's benefits, or because their lender may not offer it. Some lenders who do may also charge higher interest rates on these types of loans. Because of this, be sure to shop around and compare interest rates before settling on a flexible term mortgage plan.

Considering an Adjustable-Rate Mortgage

Ever heard of a mortgage that adjust it's interest rate based on an index? If you haven't, let me introduce you to adjustable-rate mortgages, also known as ARM. 

ARM loans are a good option because they tend to start with lower interest rates compared to fixed-rate mortgages. You'll be able to save money from the start of your loan because of this. At the same time, when fluctuations in the market conditions change for the better, you'll be able to take advantage of the lower interest rates that are automatically applied to your loan without having to switch your loan.

The obvious downside of ARMs, however, is that if the market conditions worsen, your interest rates will rise. This can make it hard to predict how exactly your mortgage payments will fare every month. 


Downsizing your home is an ideal step if you're constantly struggling with your monthly expenses like mortgage payments, property taxes, and utility bills. Owning a larger home mean more expenses. If you do downsize your home, you'll be able to get equity from the sale of your current home. This can be applied to the mortgage on the new home that you buy. 

Owning a smaller home also means that you'll be saving money on your household expenses as a whole. These expenses can also be put towards your mortgage payment, which means that you'll be able to pay off your mortgage faster.

Frequently Asked Questions (FAQs)

Is there a penalty for paying off a mortgage early?

Depending on your mortgage terms, traditional mortgage loans including those with private mortgage insurance (PMI) do charger prepayment penalty fees. It's best to check the terms of your loan with your lender to determine whether you'll be charged a penalty for paying off your mortgage early.

Is it wise to pay off my mortgage with my 401(K)?

Your 401(k) is reserved for your retirement. While it's tempting to dip into it since it's not being used, it isn't recommended to use it for your mortgage payment. 

When you withdraw funds from your 401k before you reach 59 and a half years of age, you'll need to pay a 10% penalty tax on the amount that you withdraw. Doing this will lose you a significant amount of your savings. On top of that, you'll also lose the potential for tax-deferred growth on those funds which means that your savings won't be growing as much as they could have been.

Another thing to consider is that taking money out of your 401(k) can impact your ability to save for retirement. If you're taking a large sum of money out of your 401(k) to pay off your mortgage, that means you'll have less money in your account to invest for the future. This could mean you'll need to delay retirement, work longer or reduce your standard of living in your golden years.