3 Tips To Pay Your Home Off Sooner

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The following is a guest post. Enjoy!

If you’ve considered buying a home but haven’t taken the plunge yet, one of the scariest things about it can be the time frame you’re looking at. Whether it’s your first home, a new home, or just a frustration that your current home is taking so long to pay off, let’s talk about a few steps you can take to pay off your home sooner.

Understanding Compound Interest

A friend once said that your first mortgage payment probably only buys you your front door. He meant that at the beginning of a mortgage, almost your entire payment goes towards interest. The idea of building actual equity in your home a few hundred dollars at a time can be pretty disheartening.

The real problem is that pretty soon, you’re going to be paying interest on your interest. If you haven’t done this math before, let’s take a brief example.

On a $200,000 loan, let’s say the current mortgage rates are about 3%. 3% of $200,000 is $6,000. But, that’s just for one year. Over the life of your mortgage (say 20 years), you’ll end up paying over $65,000 in interest!

But, compound interest also works in your favor. The earlier you put additional money down on your home, the more years you save paying the interest on that portion. For example, if you pay a lump sum of $10,000 in your 10th year of your mortgage, you’ll pay off your home about a year and a half sooner than you would have otherwise.

If, on the other hand, you pay that $10,000 on the FIRST year you own your home, you’ll own your home about two and a half years sooner. It’s the same amount of money, but you cut an entire extra year off of your mortgage.

1. Accelerated Payments

Your bank probably offers accelerated bi-weekly payments. By paying half your mortgage payment every two weeks, you’re actually making 26 half-payments per year instead of 12 full payments. That’s the same as an extra month’s payment every year. It’s automatic, you’ll never even notice it’s happening, and this alone will take a couple years off your mortgage.

2. House First, Furniture Second

Don’t fall into the trap of buying new furniture and renovating every room when you first move in. Remember – every extra dollar counts, so take a deep breath and spend a year or two living with your old stuff and pay the house down first.

3. Lump Sum It!

Bonuses, tax refunds, and other found money should all go towards your home. Lump sum payments really contribute to knocking down the principle and will save you a ton in interest down the road.

Have fun playing with the numbers and realize the power that decisions you make now will have over the life of your mortgage.

How about you all? Do you think it’s a good idea to try to pay off your home loan as soon as possible? If so, what strategies have you implemented successfully to meet this goal?

Share your experiences by commenting below!

***Photo courtesy of http://www.flickr.com/photos/surf98/400887772/sizes/l/in/photostream/


  1. These days if you have a mortgage obtained over five years ago, you can likely save money by refinancing. Just make sure your new term isn't going to extend past the term of your original mortgage, so if you had a 30 year mortgage with 25 years left, look at a 20 year mortgage. It'll save 5 years and your payments probably will be the same.
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    • Good advice MB! I haven't had to go through the refinancing dance yet with owning my condo, but may have to think about it in the next couple of years if interest rates keep going down.
      My recent post You Don't Know What You Don't Know – A First-Hand Account of the State of Personal Finance Education

  2. Good post. Many people are unaware of the benefits of the accelerated payments and exactly how much interest that they can avoid paying by just making a single extra payment each year.
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