How to pay off your mortgage faster – strategies to save money

When you pay off your mortgage early, you can recognize the equity you’ve gained from purchasing your home and gain the freedom to explore additional financial and life goals. Paying off your mortgage early can help you reach these milestones faster.

Additional advantages of paying your mortgage faster:

• Reduce your private mortgage insurance (PMI). If you made a down payment of less than 20% of the purchase price initially, or your loan required private mortgage insurance for another reason, certain steps may help you eliminate your PMI. If you can show that your home has increased in value, or you have paid down your loan balance enough, you may be able to request that your lender remove the PMI from your loan. Typically, you will need to have 20% equity (the difference between the market value of your home and what you owe on your mortgage) in your home. Depending on what type of property your home is, lenders may be required to end your PMI obligation after a certain amount of time. Additional factors, such as the age of the loan, your payment history, an increase in your property value, or evidence of significant home improvements, may impact your eligibility to remove PMI. Talk to your servicer to discuss your options and any associated costs.
• Remove housing costs. If you plan to stay in your home for many years, it might make sense to expedite the payoff to remove part of your housing costs (although you’ll still need to pay applicable property taxes, homeowners insurance, repairs, and upkeep).

Keep in mind that it’s important to balance your financial priorities. Before you decide to pay off your mortgage sooner, consider the following:

• Potential prepayment penalties. Though Wells Fargo doesn’t have prepayment penalties, you could potentially face prepayment penalties with another lender. Check your mortgage paperwork for a “prepayment penalty” or “prepayment disclosure.” Typically, a prepayment penalty is a fixed fee, but some are on a sliding scale based on how long you’ve held the loan.
• Optimally pay your debt. One common strategy for paying down debt is to try to pay more on the loan with the highest interest rate first. This may not be your mortgage but could instead be a credit card or student loan. Consider other needs, as well, such as retirement savings, emergency funds, and investments.
• Tax benefits. Your mortgage payments may provide benefits that other types of credit don’t, such as a potential tax deduction. Consult a tax advisor.

When you pay extra on the principal balance of your loan, you may also reduce the total amount of interest you pay over time. You may consider making extra payments where you can or refinancing your mortgage.

• Make a one-time principal payment. If you receive a tax refund, bonus, or other lump sum, you could make a one-time payment on your mortgage and ask that it be applied to your principal. 
• Make biweekly payments. With biweekly payments, you make half of your monthly payment every two weeks instead of one full payment each month, which results in one extra payment per year. You may also choose to round up each biweekly payment for added impact. Dividing your monthly payment into weekly, every other week, or twice a month payments are treated as partial payments and may not be applied to your mortgage until a full monthly payment is received. Consistent weekly or every other week payments will eventually reduce your principal loan balance. However, twice a month withdrawals will not reduce your principal loan balance.
• Refinance to a lower interest rate. Refinancing your existing mortgage to a lower rate while keeping the same term length can reduce your monthly payment. If you keep making the original higher payment amount, you would pay off your mortgage faster and pay less interest.
• Refinance to a shorter term. Alternatively, if you find you’ve paid off about 10 years on a 30-year mortgage, you could refinance to a 15-year mortgage. While a shorter term typically means a higher monthly payment, it allows you to pay off sooner and reduce the amount of interest you pay.

Most mortgages are designed to be repaid over a fixed period, typically 15 or 30 years. Each monthly mortgage payment is split between paying down your loan principal (the amount you borrowed) and covering interest costs. That doesn't mean your mortgage has to last the full term. You may end up paying off your mortgage early if you sell your home and use the sale proceeds to cover the remaining balance.

If you stay in your home, making extra payments toward your mortgage principal (whether monthly, annually, or as a one-time lump sum) can significantly reduce your loan term and help you pay off your mortgage faster. By applying additional payments directly to principal, you reduce the balance on which interest is calculated, and that can lower the total interest paid over the life of the loan and shorten your repayment timeline.

Before committing to extra mortgage payments, it’s important to evaluate your overall financial situation. Make sure you have adequate emergency savings and are balancing other financial priorities, such as student loans, auto loans, or credit card debt.

If you receive extra cash or funds, you may wonder if it makes sense to invest those dollars or use the windfall to pay off your mortgage sooner. There are pros and cons to both options, so talk with a financial professional to learn more about your specific situation.

• Paying off your mortgage – this option eliminates a major debt and may offer a valuable feeling of security, but the money used to pay off the mortgage may be harder to access later.
• Investing – depending on your current mortgage interest rate, you may gain a higher return by investing money rather than using it to pay off your mortgage. Talk with a financial professional to determine what investments may be appropriate for this situation, and whether this option aligns with your goals.

After you’ve paid off your mortgage, follow these steps to stay on top of your situation and prevent any unexpected surprises:

• Make sure you received your escrow account refund – If you were utilizing an escrow account, your loan provider should refund any amounts remaining in escrow within 20 days of you closing your account.
• Understand insurance responsibilities – Once your escrow account is closed, understand what actions now fall on you that may have previously been shared or handled by your loan provider. Notify your home insurance provider that your mortgage loan has been paid in full. It may also make sense to reallocate or reassess your coverage, depending on your situation.
• Understand property tax responsibilities – As is the case with your home insurance, you will be responsible for property tax payments moving forward. You’ll need to inform your local tax assessor or clerk’s office of the change and understand how your payments will be structured (e.g., if you are paying a single annual bill or multiple installments in a single year).
• Turn off automatic payments – after you’ve made your final mortgage payment, make sure any automatic or recurring payments are canceled. Contact your loan servicer directly to confirm that automatic withdrawals have been stopped so no additional payments are processed.

If you are a current Wells Fargo customer, you can utilize Wells Fargo Online® to explore your loan options with easy-to-use tools that allow you to set goals to own your home sooner or to manage your home’s equity.

If you’re looking for experts who advise on mortgage payoff acceleration, talk with a home mortgage consultant or a financial professional for more information.