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Ways to Pay Off Your Mortgage Faster

Key takeaway

By rounding up your monthly principal and interest payment or by considering biweekly payments rather than monthly, you may be able to save on the amount of interest you pay over the life of your mortgage. However, you may also want to consider whether making extra payments on your mortgage is the best use of your money, as opposed to paying off a high-interest credit card or boosting your emergency savings.

Mortgages are set up to be paid off over a certain amount of time, with some of the common timeframes being 30 years and 15 years. The payments you make each month not only reduce your principal (the amount you borrowed) but also pay interest.

That doesn’t mean your loan has to last for 30 years, however. If you sell your home, you may pay off your mortgage with the proceeds from the sale. Or, if you decide you can afford more than your regular monthly mortgage payment each month, you may decide to pay more on your mortgage. This strategy may help reduce the amount of interest you pay over time, but it’s important to consider your full financial picture, including your emergency savings, student loans, auto loans or credit cards.

How paying extra on your mortgage may help you pay less interest over time

Watch the video and read below to learn how making extra payments on your mortgage may help reduce the total amount of interest you pay.

Transcript: How paying extra on your mortgage may help you pay less interest over time

[Intro music]

[Video title: How paying extra on your mortgage may help you pay less interest over time]

[Image of two people in front of a "Sold" sign in front of a house]

At some point after you purchase your home, your financial situation may change. You may get a raise and have more income every month or you may pay off a credit card and have fewer monthly expenses. When this happens, you might consider paying more than your monthly mortgage bill to reduce your debt and gain equity in your home faster.

[Images of a woman sitting in front of her computer, a man looking at his credit card, and a woman writing on a notepad at her kitchen table]

Making extra payments on your principal mortgage balance, which is the amount you borrowed, may help you reduce the amount of interest you pay over the life of your mortgage.

[Image of a house icon and an up arrow icon, followed by a percentage symbol icon and a down arrow icon]

It’s worth remembering, though, that your mortgage may have a lower interest rate than other types of debt, such as credit cards. So, paying extra on your mortgage may not always be the best way to use your extra income — you may choose instead to pay off different credit accounts with higher interest rates or boost your emergency savings.

[Icon of dollar bills on the left and a house on the right. House then changes into a wallet with a credit card sticking out, and then changes into a piggy bank with coins dropping into it]

But what strategies are available if you do decide to try to pay down your mortgage faster?

Meet Ryan and Amber. Each of them purchased a home with a 30-year mortgage of $194,000 at a fixed rate of 4%, giving them a monthly principal and interest payment of $926.

[Icons of a man and a woman]

[Icon of a home]

For this hypothetical scenario, we’re not including potential additional costs, such as private mortgage insurance, taxes, or homeowners insurance. We’re also assuming they make these decisions at the very start of their mortgage loan, and continue on with them every month.

Here are two common ways you may be able to reduce the total amount of interest you pay on your mortgage. Let’s see how the total interest Ryan and Amber pay over the life of their loans may differ depending on how they approach their payments.

Scenario 1: Paying more than is required each month.

[Icons of a man and a woman with animated numbers below showing how much they are paying each month]

Ryan is going to make his regular monthly payment of $926. But starting the very first month, Amber is going to round up her payment to $1,000 per month and continue that for the full length of her mortgage. The extra amount she pays is applied to the principal of her mortgage.

This doesn’t cost Amber a lot each month. But it reduces the time she is paying off her mortgage by about four years and saves her almost $21,000 in interest.

[Image of a bar graph showing the total amount of interest paid by each person. For Ryan, it is $139,425. For Amber it is $118,623]

[Text on screen showing Amber is saving $20,802 in interest compared to Ryan]

Scenario 2: Make biweekly payments instead of monthly payments.

Again, Ryan is making his payment of $926 every month. Amber, however, chooses at the beginning of her loan term to make a half payment of $463 every two weeks, making sure her second payment of the month always arrives before the due date.

[Icons of a man and a woman with animated numbers below showing how much they are paying each month. Followed by an icon of a calendar showing Ryan making 12 monthly payments and Amber making 26 biweekly payments]

Amber ends up making 26 biweekly payments, equating to the total of one extra monthly payment each year.

If Amber continues to do this every month, she will pay off her mortgage in about 26 years instead of Ryan’s 30, saving almost $21,000 in interest over time compared to Ryan.

[Image of a bar graph showing the total amount of interest paid by each person. For Ryan, it is $139,425. For Amber it is $118,596]

[Text on screen showing Amber is saving $20,829 in interest compared to Ryan]

Any extra payments you can make toward the principal of your mortgage may help you reduce the total amount you pay in interest over time. But a consistent effort, starting from your very first mortgage payment, can really help you make progress.

[Image of a man and a woman talking to a mortgage lender]

Before you start paying extra on your loan, check with your lender about any requirements they have that could result in fees or penalties for any of these options. You may also need to specify that they apply any extra payments to the principal of your mortgage.

[Image of a woman in her living room working on her laptop]

Extra income is always a nice feeling. Putting that extra income to good use can be a great way to improve your financial situation and may help you achieve other goals in your life.

[Text on screen: A Wells Fargo home mortgage consultant may be able to help you understand what options make sense for you.]

[Text on screen:]

Wells Fargo Home Mortgage is a division of Wells Fargo Bank, N.A.  
© 2014-2022 Wells Fargo Bank, N.A. NMLSR ID 399801.

The scenarios presented in the video aren’t the only ways to make extra payments on your mort. For example, if you get a tax refund, you could make a one-time payment on your mortgage and ask that it be applied to your principal. You could also combine scenarios by choosing biweekly payments and then rounding up that biweekly amount.

  • Refinance your mortgage to a lower rate: Refinancing your existing mortgage could result in a lower monthly payment amount if you refinance with a lower rate and the same term as what’s remaining on your current loan. You could also keep making the original higher payment amount, from your old loan which would help pay off your new loan sooner and pay less interest.
  • Refinance your mortgage to a shorter term — Alternatively, if you find that you’ve paid off about 10 years on a 30-year mortgage, you could refinance to a 15-year mortgage to get you closer to the end date.

Paying extra on your mortgage loan may have other advantages.

  • 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. Other factors to remove PMI include having a good payment history, the currency of the loan, and depending upon the investor, an automated valuation model (AVM). 
  • You can potentially save thousands of dollars on the additional interest you’d pay over the course of the mortgage term.
  • If you plan to stay in your home for the long haul, it makes sense to expedite the payoff so you remove part of your housing costs (although you’ll still need to pay applicable taxes, homeowners insurance, repairs, and upkeep).
  • Many people believe the ultimate peace of mind is knowing you own your own home outright. For example, if you lost your job or had to take a pay cut, you can rest easy knowing that you don’t have to make monthly mortgage payments.

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

  • 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.
  • As mentioned in the video, one common strategy for paying down debt is to try to pay more on the one with the highest interest rate first. This may not be your mortgage but could be a credit card or student loan instead. Consider other needs, as well, such as retirement savings, emergency funds, and investments.
  • Tapping into retirement savings may put your retirement at risk. In general, this strategy is considered risky and is highly discouraged.
  • Your mortgage payments may provide you with benefits that other types of credit don’t, such as a potential tax deduction. Consult your tax advisor.

Your home mortgage consultant can help you understand your payment options as you’re securing your mortgage. Talk to them about your goals and determine what strategy works best for you.

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