How to Pay Off Your Mortgage Early (for FREE!)

Now that my wife and I have paid off all our non-mortgage debt, it’s time to turn our attention to the mortgage. We currently owe over $500,000 on our home (gulp!). No, we don’t live in a mansion; we live in Northern Virginia. And even with the downturn in the housing market, real estate prices are still crazy here.

So I’ve been spending some time figuring out how we are going to attack our mortgage. There are several ways to pay down a mortgage early. But the absolute first step is to determine if it makes sense to refinance. We just completed a refinance, and it will shave tens of thousands of dollars off our interest payments. While you may not think of a refi as paying off the mortgage early, it can do just that if you approach it the right way. So let’s take a look at how refinancing done the right way can help you pay off your mortgage early.

Refinance to a Lower Rate

Without a doubt, refinancing your mortgage to a lower interest rate can be the most effective way to pay off your mortgage early. But there is a catch. Let me explain using our mortgage as an example.

We bought our current home in 2004. We financed 80% of the purchase price with a 30-year fixed rate mortgage at 5.625%. Earlier this year we refinanced to another 30-year fixed rate mortgage at 4.875%. Given our mortgage balance, this lower interest rate will save us a bundle in interest payments. However, if we make the minimum required payment each month, the refi will actually prolong the time it takes to pay off our mortgage. Why? Because when we refinanced, we were down to “just” 24 years on our mortgage. After the refi, we are back to square one on a 30-year loan.

So if your goal is to pay off the mortgage early using a refi, it’s critical that you continue to make your old mortgage payment. Yes, it’s higher than your new minimum required payment, but with the lower rate, you’ll really start eating away at your loan. And that leaves one important question–if you continue to make your old mortgage payment, how soon will you pay off your home loan?

Fortunately, it is really easy to make this calculation. You need to use a mortgage calculator that let’s you add extra payments to the mortgage each month. Karl’s mortgage calculator has this feature and is extremely easy to use. Simply input your new mortgage terms into the calculator, and then add as an extra payment each month the difference between your old mortgage payment and your new one. In our case, we will pay off our loan in about 21 years, 3 years faster than if we had stuck with the old loan.

What’s great about this approach is that you can shave off years from your mortgage without paying more each month. Of course, it does depend on your ability to refinance to a lower mortgage. But if you can, it’s a painless way to save money.

And if you want more easy ways to save, check out my free eBook, 99 Painless Ways to Save Money.

Published or Updated: June 27, 2011
About Rob Berger

Rob founded the Dough Roller in 2007. A litigation attorney in the securities industry, he lives in Northern Virginia with his wife, their two teenagers, and the family mascot, a shih tzu named Sophie.


  1. Philip says:

    Interesting way to look at it, DR. We’re doing the exact same thing (refi back to 30). We have no intention of staying here much longer though. But we can’t sell it without losing our shirt. So we’ll keep it as a rental. With the new payment, it becomes easier to cash flow it. This post motivates me to keep making the same payment until we switch it to a rental.

  2. Good stuff DR. I paid off the mortgage just recently…not sure if it is the best overall financial strategy, but it certainly feels good. Don’t know if you are interested…but I would like to offer your followers a chance to get a professional builder’s opinion on a problem they have with their home…for free. I just started a new site that helps people build, renovate, and repair their own home. By managing the process yourself, you can save money and get exactly what you want. But we can’t help people unless they know we exist.

    Here is the link to our blog with the free offer…

    Thanks for taking the time,


  3. Sounds like you have a good plan…I am all for paying off a mortgage early. We refinanced from a 30-year to a 15-year mortgage last year and are paying more on principal each month to get the note paid off in 8.5 years.

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