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How To Pay Off a Mortgage Early

Does paying off your mortgage early sound too good to be true? Well, becoming mortgage-free may be easier than you think. There are a few paths many homeowners take—from paying down their principal or interest faster to refinancing. We’ve rounded up six tips to pay off a mortgage early that could shave months—or years—off your home loan. Note: Before paying off a loan early, ask your mortgage servicer (the company you send your payment to) if your loan has a pre-payment penalty/fee.

1. Make an extra payment every year

A top tip to paying off a mortgage early is to make one extra monthly payment annually. The trick is to apply the entire amount to your mortgage’s principal balance, which is what you owe before interest, taxes, and insurance are added in. This reduces the loan’s principal balance faster and may save you thousands of dollars over the life of your loan. To make the added expense easier, consider timing the payment for when you expect extra money to come in. This could be from a company bonus, tax refund, or one of your deduction-free third paychecks of the month (if you’re paid biweekly). You can get a rough estimate of your savings using a payoff calculator.

Example: Maria is buying a new home for $400,000 and putting 20% down. Her loan will be for 30 years at a fixed rate of 6.5%, and her monthly principal and interest will be $2,022.62. Using a payoff calculator, she finds that if she makes an extra $2,022 principal payment annually, she may:

  • Pay off her loan about 6 years early (71 months).
  • Save $96,567.80 in interest over the life of her loan.

Note: Be sure to notify your servicer any time an overpayment to your mortgage should apply to your loan’s principal balance. If you’re a Mr. Cooper customer, you can do this when making a payment by phone or a payment online, or by indicating that it is to be applied as a principal payment on your payment coupon by mail.

2. Pay a little extra each month

If you can’t afford to make a big lump sum payment, a second strategy is to pay a little more each month. For example, if you wanted to make an extra payment per year, you could break it up over 12 months instead. If you had a $1,200 monthly payment, that’d be an extra $100 a month toward your loan’s principal balance. Putting things in perspective, consumers spent an average of $3,030 on “food away from home” in 2021, according to the U.S. Bureau of Labor Statistics. Imagine how trading a few extra meals out could help pay off a mortgage early!

Example: Maria is moving forward with her $400,000 loan, described above. But she decides to divide an extra $2,022 payment toward her principal balance over the year. That will be about $169/month extra. She may:

  • Pay off her loan about 6 years (70 months) early.
  • Save $93,275.15 in interest over the life of her loan.

Note: As with option #1 above, be sure to notify your servicer any time an overpayment to your mortgage should apply to your loan’s principal balance.

3. Switch to biweekly monthly payments

Biweekly payments may also help you pay off a mortgage early because they can reduce a loan’s principal balance faster. As with the previous options, the Consumer Financial Protection Bureau adds, check in with your servicer to see if they charge any fees for biweekly payments.

If you’re a Mr. Cooper customer, you can sign up for Biweekly AutoPay to make it even easier—plus, there are no fees. We’ll automatically draw a half-payment from your account every 2 weeks (14 days) for a total of 26 payments during the year. For information on setting it up, see our Help Center’s Biweekly AutoPay article for an authorization form and terms and conditions.

4. Refinance to a shorter term

The payoff date for a 30-year mortgage may seem far off, but what if your loan’s payoff date was 10 or 15 years earlier? Refinancing your loan is a way to do this in order to pay off a mortgage early. A refinance will replace your current mortgage with a new loan. With that new loan, you can choose a shorter term, which reduces your principal balance faster. For example, if you have 20 years left on your loan’s term, you may refinance to 10 years.

There are a few possible tradeoffs with a refinance, though. You may end up with a higher interest rate and monthly payment, but a mortgage professional can help you weigh your options. (One of Mr. Cooper’s mortgage experts can tell you more about how a loan with a shorter term could affect your monthly mortgage payment—you can contact us about refinancing.)

5. Recast your mortgage

A mortgage recast is a way to lower your mortgage’s monthly payment. If you commit to making a larger payment after the recast—say the same amount you’re paying now—you can also potentially pay off your mortgage early.

To make the recast work, you would make a lump sum payment to your mortgage’s principal balance. Your servicer would then re-amortize your loan, leaving your mortgage’s rate and term the same. (Amortization schedules list out how many months you need to pay the loan’s principal and interest.) If you’re a Mr. Cooper customer, you can check your eligibility and submit a recast request in our Help Center’s Mortgage Recast article.

6. Refinance to a lower interest rate

If you’re locked into a higher interest rate on your mortgage than the current interest rates, it may be a good idea to consider refinancing. This could lower your monthly payment and prepare you to pay your mortgage off early. If you continued to pay the same amount toward your new mortgage that you do today, you may save thousands of dollars in interest over the life of your loan.

If you’re interested in learning more about current interest rates and how they could impact your home loan, check out our Step-By-Step Guide to Refinancing. You can also view Mr. Cooper’s mortgage rates online.

For more information on how to pay off a mortgage early and to estimate your potential savings, talk to a Mr. Cooper mortgage professional. If you’re already a Mr. Cooper customer, you can also log in to your online account to chat with us or send a message through our Message Center. And for more tips on payments overall, check out our Help Center’s Payments & Payoffs section.

*By refinancing your existing mortgage, your total finance charges may be higher over the life of the loan.