How to Pay Off Your Home Mortgage Early

According to the US Census, nearly 1/3 of all home owners own their house free and clear. This completely dispels the myth that you will always have a house payment. Paying your house off early is an important financial goal and here's how.

Get on a written monthly spending plan called a budget. If you tell your money where to go before it arrives, then it will go there.
Pay off all debt except the house. This includes credit cards, student loans and cars. These debts are messier than house debts and should be eliminated first.
Get in a strong cash position with an emergency fund of around 3 to 6 months of living expenses. You don't want something coming up that forces you into not paying your house. You want to pay it off early, not lose it.
Don't forget about retirement. Contribute a decent amount - say 15% of your income - to retirement. You don't want to retire with a paid for house and no money. It would be better to rent!
Get together every last dollar you can to pay off your house. To get started, you may wish to have a yard sale. You probably have more stuff than you need in your house anyhow.

Now that you have no other debt, you can take all those payment amounts and dedicate it to the house.

Here's a fun fact: if you have a new 30 year mortgage at 6% interest and you double the amount you pay each month, you will pay off the mortgage in 9 years. If you triple your payments, you will pay it off in 5 years and 5 months.
Each month, send an extra check in a separate envelope to the mortgage company and designate it clearly as "principal only".
After a couple of months, get a statement of all account activity from your mortgage company. Make sure that they actually applied the additional principal payments to principal. You should see drops in principal in the amounts that you sent in. If they do not account for this properly, make a big fuss and make sure that they correct all existing payments and promise to do it correctly for all payments going forward.

  • Fun fact number 2: if you have a $100,000, 30 year mortgage at 6%, and you contribute an extra $10/month (about the cost of a smallish pizza), you will pay off the mortgage 16 months earlier. That's right, more than a year earlier! That will buy you plenty of pizzas later!

Copyright 2009 by Michael Nehring