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Paying Mortgages Early: Online Methods & Benefits

A mortgage is a loan used to finance the purchase of a home or other real estate. The mortgage holder borrows money from a lender and agrees to pay it back over time, typically 15 or 30 years, with interest. 

Paying off your mortgage early can provide many benefits. It allows you to own your home free and clear sooner, saves money on interest, improves your credit score, gives you peace of mind, and increases your financial security. With careful planning and budgeting, online tools, and commitment, you can make extra payments to pay down your mortgage principal faster.

A woman paying off a mortgage online

Understand Your Mortgage Terms

The first step is to fully understand the terms of your mortgage loan. This includes:

  • The loan amount
  • The interest rate 
  • The loan term (e.g. 30 years)
  • Your monthly principal and interest payment amount
  • Whether you have a fixed or adjustable rate mortgage
  • If there are any prepayment penalties for paying off your loan early

You can find all of these mortgage details on your loan documents or by logging into your lender’s website. The average American homeowner has a mortgage balance of $209,200. (Source: Experian, 2023.) Reviewing your mortgage specifics will allow you to calculate how much you can potentially save by making additional payments.

Set a Budget for Extra Payments

Next, determine how much extra you can afford to pay towards your mortgage principal each month. Setting a realistic budget is key so you don’t take on too much and struggle to maintain the higher payments long-term.

Some guidelines:

  • Start small if needed, such as an extra $100 or $200 per month
  • Try to pay at least an extra 10-15% of your normal payment
  • Cut back discretionary spending to find extra funds
  • Use windfalls like bonuses and tax refunds
  • Consider getting a side hustle for added income

Sticking to your budget for extra payments takes discipline, but the long-term payoff can be well worth it. For example, if you have a 30-year mortgage with a 5% interest rate, you would pay over $100,000 in interest over the life of the loan. If you were to pay off your mortgage in 15 years, you would save over $50,000 in interest. (Source: NerdWallet, 2023.)

Use an Online Mortgage Calculator

Specialized online calculators allow you to see exactly how much you can save in the long run by making additional mortgage payments. 

Enter details like:

  • Your mortgage balance
  • Interest rate
  • Remaining loan term 
  • The extra monthly principal payment amount

The calculator will estimate:

  • How many months or years you can shave off your loan term
  • The total interest cost savings 
  • Your new monthly payment

Playing around with different extra payment amounts gives you a clearer picture of the impact they can have. Knowing your potential savings can keep you motivated.

Choose an Online Payment Method

Most mortgage lenders offer easy online options to make one-time extra payments. You can typically:

  • Pay by electronic check from your bank account 
  • Use a credit or debit card (may incur a processing fee)
  • Set up automatic recurring payments of a set amount

Log into your lender’s website and explore their pay online or bill pay section. Setting up automatic payments on a certain date each month is an easy “set it and forget it” approach. 

Alternatively, you can mail a check or pay in person if you prefer. Online payments offer convenience and are processed quickly. The average millionaire pays off their mortgage in 11 years. (Source: Dave Ramsey, 2023.) Taking advantage of digital payment methods can help you reach your payoff goals faster too.

Make Bi-weekly Payments Instead of Monthly Payments

One simple but effective way to pay off your mortgage faster is to switch to a bi-weekly payment schedule. How it works:

  • You divide your monthly payment amount in half 
  • Pay half the payment every two weeks 
  • This adds up to the equivalent of one extra monthly payment per year

Many lenders don’t charge extra fees for bi-weekly payments from your checking account. Over the loan term, the extra principal-only payments can shave years off the length of your mortgage. 

It takes the average American homeowner 30 years to pay off their mortgage. (Source: U.S. Census Bureau, 2020.) Bi-weekly payments can make a big dent.

Make One Extra Payment Each Year

If bi-weekly payments don’t work with your budget, even one extra mortgage payment per year can make a difference. 

For example, on a $250,000 balance at 4% interest:

  • Just one extra $1,000 principal payment each year saves over $50,000 in interest charges over a 30 year term
  • It cuts the loan length down by nearly 6 years 

Check if your lender allows an extra payment without a fee. Put a reminder on your calendar so you don’t forget to submit it. 

Small yet consistent additional payments add up over time. Use online calculators to play with the numbers and see your potential savings.

Apply Windfalls to Your Mortgage Balance

Use unexpected extra income to make a big dent in your mortgage debt. Examples of financial windfalls to take advantage of include:

  • Annual bonuses from work
  • Income tax refunds
  • Inheritances
  • Cash gifts 
  • Proceeds from selling assets like a car

Rather than spending these surprise funds on luxuries, apply them directly to your mortgage principal for a guaranteed “return” in the form of interest savings. Paying ahead by just one or two lump sum payments each year accelerates your payoff timeline significantly.

Refinance Your Mortgage

Refinancing replaces your existing mortgage with a new loan, ideally with a lower interest rate. This reduces your monthly payments, allowing you to pay off your balance faster. 

Most people can benefit from refinancing when rates drop by 0.75% to 1% below their current mortgage rate. Work with a lender to run the numbers and see if refinancing could save you tens of thousands of dollars in interest while shortening your term. Many lenders let you get pre-approved online in just minutes with no impact to your credit score.

Paying off your mortgage early can improve your credit score. (Source: MyFICO, 2023.) When you have a lower debt-to-income ratio, your credit score is likely to improve. This is because lenders see borrowers with lower debt-to-income ratios as being less risky.

Keep Track of Your Progress Online

Monitoring your mortgage payoff progress helps you stay focused on your goal. Most lender websites have an easy login to view:

  • Your current principal balance
  • Total amount paid to date 
  • Interest paid so far
  • Projected payoff timeline

Watching your overall balance decrease and payoff date approach can keep you motivated. Celebrate important milestones like hitting certain 10% thresholds paid off.

For a big picture overview, use online calculators or free apps like Mortgage Payoff Planner that integrate with your accounts for tracking. Staying informed about your progress makes the payoff goal feel more real and achievable.

Stay Motivated and Committed

Paying off your home loan early takes dedication, perseverance, and focus. Here are some tips:

  • Post motivational reminders around your home
  • Tell family and friends about your goal and have them cheer you on
  • Learn inspiring stories of others who paid off their mortgages fast 
  • Review your progress and savings regularly
  • Imagine how great it will feel to be mortgage free

When you have an extra financial windfall, stay disciplined and put it towards your mortgage principal rather than spending it. The closer you get to zero, the more fired up you’ll be to get there.

Paying off your mortgage early can give you peace of mind. (Source: Marriage Kids and Money, 2023.) Many people find it comforting to know that they own their home outright and don’t have to worry about making mortgage payments anymore. This financial security and stability is worth celebrating.

Why Should You Consider Paying Off Your Mortgage Early?

Paying off your home loan faster than the standard repayment term has many potential benefits:

Financial Benefits

  • Save significant money on interest payments
  • Own your home free and clear sooner
  • Equity in the home increases faster
  • Lower debt-to-income ratio improves credit
  • Allows you to invest/save the former mortgage payment amount

Peace of Mind Benefits

  • Provides a sense of financial security and stability
  • Eliminates the burden of a monthly mortgage bill 
  • Reduces financial risks and exposure if you lose your job
  • Allows greater flexibility in retirement
  • Gives the satisfaction of home ownership 

Increased Financial Security

  • Your housing costs become predictable
  • It hedges against rising interest rates
  • You can’t be foreclosed on if you own your home outright
  • Helps weather difficult financial times
  • Allows you to leave a debt-free asset to heirs

The exact benefits will vary based on your specific mortgage and financial situation. However, becoming mortgage free years earlier can be life-changing. Evaluate your own motivations and be clear why accelerated repayment is a priority.

What are the Benefits of Paying Off a Mortgage Early?

Paying off your home loan faster than the scheduled repayment term provides a number of significant benefits:

Financial Benefits

You save a substantial amount on interest charges – Interest makes up a considerable portion of a mortgage’s total costs. Paying off your balance faster minimizes interest fees, saving tens of thousands.

Your home equity increases more quickly – Principal payments build equity that you can tap into for other purposes. Shortening your term grows your equity stake faster. 

You can invest/save the money instead – Investing your former mortgage payment amount generates returns. Saving it builds your net worth faster or funds other goals.

Your debt-to-income ratio improves – You appear less risky to lenders with a lower DTI. This can help you qualify for the best loan rates and terms.

Your monthly housing costs become predictable – Once your mortgage is paid, you know your fixed housing expenses for as long as you own it. This stability helps budgeting and financial planning.

Emotional & Psychological Benefits:

You have peace of mind without housing debt – Eliminating your mortgage provides security knowing you can’t be foreclosed on and avoids uncertainty of payments. 

You have pride and satisfaction of home ownership – Full ownership and being “debt free” gives many people an immense feeling of accomplishment and satisfaction.

It provides housing stability – Outright ownership gives you secure and predictable housing without concerns about mortgage renewals or interest rate risk.

It allows greater retirement flexibility – Entering retirement mortgage-free gives you one less fixed expense, allowing your savings to stretch further and making your budgeting easier.

You leave an inheritance – Having your home paid off allows you to leave the full asset value to heirs free of any attached mortgage debt.

Increased Financial Security:

You have a financial safety net – Owning your home free and clear gives you an asset to tap if you ever need access to funds in an emergency. 

You reduce job loss exposure – Without a monthly mortgage payment depending on your income, you face less financial risk in periods of unemployment.

You have protection from rising rates – Locking in your housing costs now avoids payment shock when rates eventually rise, securing your budget.

You weather crises better – Not having a mortgage bill provides more breathing room to get through unforeseen expenses or a health issue.

78% of working Americans live paycheck to paycheck. (Source: CareerBuilder, 2022.) This lack of financial security means that most households are not prepared for emergencies or unemployment. Paying off your mortgage early helps protect your family and prevents financial risks.

In summary, accelerated mortgage repayment can strengthen your financial foundation in numerous ways while also providing peace of mind. Crunching the numbers makes clear how decisive early payoff can be.

How Can Paying Off a Mortgage Early Save You Money?

Paying off your mortgage early can save you a significant amount of money on the total interest paid over your loan term. Here are some of the biggest ways it saves you:

You pay less interest overall

Interest makes up the bulk of your mortgage’s total costs. On a $300,000 loan at 4% over 30 years, you would pay $186,560 in total interest. Paying it off in 20 years instead would save over $62,000 in interest.

The sooner you pay down the principal, the less time interest has to accumulate so your savings multiply. Even shaving just a few years off can mean tens of thousands less in interest.

Your equity share grows faster

Principal payments increase the share of your home you outright own. With a 30-year mortgage, it takes a long time before you build significant equity to tap into if needed.

Paying extra each month accelerates equity accumulation. After 10 years (1/3 of term) you might only have 20% equity normally. With accelerated repayment, you may have 50% or more by then.

You can invest the freed up funds for returns

Once your mortgage is paid off, your previous housing payment amount becomes available for other productive uses. Invested properly, those funds can generate ongoing returns and capital gains.

Alternatively, you can save the money for retirement or other goals. Either approach lets the former mortgage money work harder since it’s no longer lost to interest.

You have financial protection from job loss

Losing your job means losing the steady income used to pay debts like your mortgage. This can put you at risk for default, foreclosure, and other issues.

Without a monthly mortgage bill hanging over you, periods of unemployment become less financially threatening. The security of outright ownership provides peace of mind.

You gain a large asset to borrow against if needed

Having extensive home equity gives you access to an emergency funding source via a line of credit or cash-out refinance if you ever need it. This insurance policy can be invaluable in difficult times.

While borrowing against your home comes with risks, it’s a convenient and low-cost option made possible by accelerating your equity accumulation upfront through early repayment.

In short, paying off your home faster frees up monthly cash flow for investing, reduces total interest costs, builds your equity and net worth quicker, protects you from income disruptions, and gives you a safety net in your asset. The savings and security make it well worth the effort.

What are the Risks or Downsides of Paying Off a Mortgage Early?

While paying off your mortgage early has many financial benefits, there are some potential downsides to consider:

You may miss out on higher investment returns

Money put towards extra mortgage principal could be invested instead. In some cases, market returns may exceed the interest rate you save by paying off your loan faster. You need to weigh the guaranteed savings against potential earnings.

You lose tax deductions for mortgage interest

In some countries, mortgage interest is tax deductible. Paying off your loan early reduces this deduction benefit. However, the long-term interest savings typically outweigh the lost tax shields.

You lose flexibility if you need cash

Once paid off, you can only tap your home equity by taking out a loan against it. Having an open mortgage gives you more options to draw funds when needed, such as increasing your principal payments again.

You have less diversification

Making extra payments ties up more capital in your home, reducing diversification. Being overly exposed to home equity has risks if the real estate market declines.

Prepayment penalties may apply

While not common, some mortgages charge penalties for repaying too far ahead of schedule. It’s wise to check if penalties could wipe out some of your savings by paying off too fast.

Refinance rates could drop further

You may be tempted to pay off your current mortgage ASAP. However, refinance rates could drop even lower soon, saving you more in the long run. It can be hard to predict the best timing.

Half of all marriages end in divorce. (Source: American Psychological Association, 2022.) If you aggressively pay down a mortgage with a spouse and later divorce, issues around distributing that equity can arise. Keep finances balanced.

To best handle these risks, remain diversified, weigh all alternatives thoroughly, and keep an emergency fund even once your home is paid off. The benefits typically outweigh the downsides for most people who can manage the trade-offs.

How Does Refinancing Help in Paying Off a Mortgage Early?

Refinancing your mortgage to a lower interest rate allows you to pay off your overall home loan balance faster. Here are some of the main ways it accelerates repayment:

Your monthly payments decrease

Refinancing to a lower rate reduces your required monthly mortgage payments. This decreases the amount going towards interest and increases the share that pays down principal. 

For example, dropping your rate by 1.5% could reduce payments by $200 per month. That extra $200 each month can now go straight to paying off your balance faster.

Shorter loan terms become affordable

Lower interest rates make shorter loan terms more affordable. Switching from a 30-year to 20-year mortgage keeps payments nearly the same while paying off your balance much quicker.

You restart the amortization schedule

Refinancing restarts the amortization schedule on your mortgage, meaning the amount of interest vs principal recalibrates. More of your payment applies to principal in the early years of a new loan.

You can withdraw some cash out if needed

Many cash-out refinances allow you to withdraw some home equity. You can use these funds for other goals while still paying less overall on your mortgage thanks to the lower rate.

Your interest tax deductions may increase

Refinancing restarts the tax deductions for mortgage interest payments, providing bigger tax savings in the early years of the new loan.

Your credit score may rise

If you previously had a higher debt-to-income ratio, refinancing with lower payments can help improve your credit score over time by lowering your DTI. Better credit means better loan terms.

You can ditch mortgage insurance (PMI) faster

Lower monthly payments help you more quickly reach 20% equity so you can eliminate expensive private mortgage insurance premiums, saving even more.

You re-qualify at current rates if yours was adjustable

If your prior mortgage had an adjustable rate that may rise, refinancing locks in a low fixed rate. This prevents future increases that would slow your repayment.

Refinancing can kickstart your accelerated payoff efforts by making fast progress in the first years of a new loan. Crunch the numbers to see if it’s right for your situation.

What are Some Effective Strategies to Pay off a Mortgage Early?

Here are proven strategies to pay off your mortgage ahead of schedule:

Make biweekly instead of monthly payments – This results in the equivalent of one extra payment per year, shaving years off the loan term.

Pay half your yearly bonus to the principal – Use 50% of bonuses, tax refunds, and other windfalls to make lump sum extra payments. 

Reinvest savings from refinancing – If you reduce your rate via refinancing, take the monthly savings and redirect it to the new mortgage principal.

Dedicate raises/promotions to the mortgage – Allocate a portion of any increase in your income directly towards extra principal payments.

Create new income streams – Use funds from side hustles, freelancing, or monetizing a hobby solely for making extra mortgage payments.

Reduce discretionary spending – Critically evaluate your expenses and cut back on dining out, entertainment, travel, shopping etc. to free up cash for mortgage payments. Be disciplined. 

Rent out part of your home – If space allows, renting out a basement unit or extra room provides rental income that can supplement your principal payments.

Gradually increase payments annually – Start small if needed, but schedule to incrementally raise your extra principal payments by 5-10% each year. 

Visualize the payoff – Use online calculators and your projected payoff timeline as motivation to stay on track and even increase payments.

Pay weekly instead of monthly – Make smaller payments each week for the equivalent of an extra monthly payment each year. Automatic transfers from checking help.

65% of millionaires are mortgage-free. (Source: The Millionaire Next Door, 2018.) To build significant wealth, commit to aggressively paying off your home by implementing multiples strategies consistently.

Can You Use Online Banking to Make Extra Payments Towards Your Mortgage?

Yes, online banking provides a convenient way to make additional principal payments towards your mortgage to pay it off faster. Here are some tips:

Use bill pay – Most bank websites allow you to enroll your mortgage lender as a payee, allowing one-time or recurring payments.

Log into your lender site – Directly logging into your mortgage company’s website often provides a fast way to submit one-time payments by electronic check or debit/credit card. 

Enroll in auto-pay – Your lender likely allows setting up automatic recurring payments for a set extra amount each month.

Link accounts – Services like Mint allow you to link mortgage accounts for easy transfers between your checking and loan.

Schedule payments – You can schedule future-dated online payments through your bank for your paydays or other due dates to “set and forget”.

Use mobile apps – Many banks and lenders have mobile apps that include bill pay and payment options. The convenience helps repayment consistency.

Confirm payment application – Follow up with your lender to make sure any extra online payments were applied correctly to the mortgage principal balance, not escrow.

Watch for fees – A few lenders charge for online payments. But most accept electronic payments for free, so shop around if needed.

With today’s digital banking access, it only takes a few clicks to make regular extra payments and watch your mortgage balance decrease faster. Autopay and schedule recurring payments for the month’s end when your income hits.

Is There Any Penalty for Paying Off a Mortgage Early?

In most cases today, there is no penalty for paying off your mortgage ahead of schedule. However, here are some scenarios where prepayment penalties may apply:

  • You have a loan insured by the Federal Housing Administration (FHA). FHA loans have prepayment penalties if you pay off in the first 3 years.
  • You took out your mortgage before the 2008 housing crisis. Some older loan programs still have prepayment penalties, particularly subprime or adjustable-rate mortgages (ARMs).
  • You have a small “portfolio” loan from a local bank. Smaller lenders sometimes keep loans on their books and charge penalties to deter early payoff.
  • You deliberately chose a mortgage with a prepayment penalty. For certain situations like averaging short-term rates, you agree to the penalties.
  • You pay off the loan within a few months after closing. Most lenders prohibit prepaying so fast after origination, to recoup their closing costs.
  • You refinance your mortgage with the same lender. Refinancing with a new lender resets the penalties, but your existing lender may impose them.

If you’re unsure, check your original mortgage documents or ask your lender directly about any prepayment penalties. This can help you avoid surprises from paying your mortgage off too early.