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How to pay off your mortgage early

Paying your mortgage early is a great way to save money because it can reduce the total interest you’ll pay over the life of the loan. Interest is calculated each month based on the principal balance you owe, so paying more on your principal will lead to less interest overall. 
 
There’re plenty of ways to pay down your principal faster and start reducing the amount of interest you’ll owe. Knowing your options and how they work is the first step to finding what’s best for you. Here are a few ways to pay your mortgage off earlier. 

Refinance to a shorter-term loan

If you have a 30-year mortgage, you can refinance to a 10- or 15-year loan to pay it off faster. Shorter-term loans usually have lower interest rates, but they’ll probably make your monthly payment bigger. Check out what the current interest rates are and crunch the numbers to see if your budget can handle the bigger monthly payment.  
 
Refinancing could be a great option if you can secure a loan with a lower interest rate—you'll pay less in interest overall and you could pay the mortgage off sooner. 

Pay extra on your principal

When you pay extra toward your principal, it brings down the total balance of your loan and reduces your interest over time. If you regularly put extra toward your mortgage, you can save yourself some payments in the long run. Just keep in mind: No matter how you choose to pay extra, you’ll likely need to tell your lender to apply the extra payments to your mortgage principal. 
 
Here are 3 ways to pay extra toward your principal—it might be easier than you think. 
 
1. Pay extra on your mortgage throughout the year 
 
Any extra you can put toward your loan will help reduce the amount of interest you’ll pay. Here are 2 ways to make the equivalent of 13 payments in a year: 
 
  • Divide your monthly principal payment by 12, and then add that amount to what you already pay each month. It will equate to approximately 1 extra principal payment a year. 
  • Switch up your payment schedule to half-payments every other week instead of 1 monthly payment for the full amount. That results in 26 half-payments, which equals approximately 13 full monthly payments each year.
2. Make one extra mortgage payment each year 
 
You could also make one full extra payment at the end of the year. To make sure you have that extra payment ready, you’d start by saving 1/12 of a payment every month. After 12 months, you’d have enough to make a full month’s payment without having to stress about coming up with more cash.  
 
If you made one extra payment every year after getting a 30-year loan, you’d pay off your mortgage four years and three months earlier than if you’d only made your regular payments. 
 
3. Put extra money toward your mortgage 
 
If you have extra money coming in, it’s worth considering paying more on your principal to save yourself on the interest later. You might get extra money from a bonus at work, a raise, a side-job, a tax refund, or an inheritance. When you get extra cash that's more than your budget says you need, you can put it toward your mortgage if you don’t have other plans for the money. 

Don’t over-do it

Always be careful not to put too much extra money toward your mortgage. It’s great to pay down your debt early, but it shouldn’t affect other priorities like saving for emergencies, paying off high-interest debt, or even home improvement projects. Evaluate your budget, see if there’s room to pay more toward your mortgage, and then make a plan that fits your financial goals.

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This information is general in nature and provided for educational purposes only.

Fidelity does not provide legal or tax advice. The information herein is general in nature and should not be considered legal or tax advice. Consult an attorney or tax professional regarding your specific situation.

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