Pay Off Your Mortgage in Record Time
The title is a little misleading, but you may have heard or seen claims of such. There are no tricks to paying off your mortgage faster. It is a debt like any other, extra payments mean you bring the total cost of interest down and you will have it paid off sooner. There are companies that will guide you on how to pay off your mortgage quicker with their advanced software. Be aware they come with a hefty price tag and you can do it yourself.
The most popular way to pay down your mortgage is to make payments every two weeks rather than monthly. Simply take your current mortgage payment, cut it in half and you now pay every two weeks. You are essentially now making an extra mortgage payment every year as there will be two months that you make three mortgage payments. Ideally you get paid bi-weekly and this strategy fits right into your budget.
Here is an example with a $250,000 mortgage at 5.5% over 25 years.
Monthly Payments: $1525.98
Number of Payments per Year: 12
Total Payments: $18,311.76
Balance after 5 Years: $222,968.63
Amortization: 25 Years
Bi-weekly Payments: $762.99
Number of Payments per Year: 26
Total Payments: $19837.74
Balance after 5 Years: $214,084.83
New Amortization: 21 Years 3 Months
Projected Interest Savings: $35,480.17
Simply increasing your monthly mortgage payment by 10% produces these results:
Monthly Payments: $1,678.58
Number of Payments per Year: 12
Total Payments: $20,142.94
Balance after 5 Years: $212,474.24
Amortization: 20 Years 9 Months
Projected Interest Savings: $40,616.38
As you can see, some simple increases to your mortgage payments can save you thousands of dollars. No magic, just applying some discipline.
There are various companies marketing mortgage accelerator software or money merge accounts. These software programs will keep you on track and motivate you to pay your mortgage down faster but with price tags of $1,000 - $3,500 USD you are paying for that motivation. The software does not do anything that you can not do yourself. If you have total dept of $250,000 it is pretty basic that you will be able to pay that off faster than if you add the cost of the software to your total and you now have $258,500 to pay off.
The concept is the software tells you what debts you should be paying when and how much. I attended a presentation for one version of this software and none of the reps could tell me exactly why the program suggested paying down a a debt with a lower interest rate when there were debts with higher interest rates. That will never make sense. Mathematically, it is impossible to save paying down debt this way.
To do it yourself you need to eliminate all high interest debt, possibly with a line of credit and then pay off the line of credit. Do not carry a balance on any credit cards and avoid taking out other high interest loans. Then make extra payments to your mortgage with your discretionary income. Most mortgages allow you to increase your payments or apply lump sums to your balance. Contact your lender for more information.
Where do I get money to make extra payments?
Figure out where you are spending your money and then figure out what you can eliminate. Apply the savings to your mortgage. Google money saving tips, money saving ideas or any variation and you will find literally thousands of ideas.
Take the money you could have spent on the software and apply it to your mortgage. Download a mortgage calculator from . Track your payments, your balance, and your interest savings all for free. Want to see what the big screen TV is costing you if you applied that $2,000 to your mortgage? Put it in as a prepayment and take a look at the changes.
Good luck on your journey to reduce your debt!
I suggest you go to the following website and carefully watch the Tutorials (removed – advertising). This does work and similar programs have been used for over 12 years in UK and Australia. You must have a cash inflow greater than your monthly expenses. No additional payments are required. The reason it works is you are taking advantage of the fact that the LOC is simple interest while the mortgage is amortized over a long period of time with the interest largely front end loaded. Most people have a hard time wrapping their heads around it but it works. If you put the cost on the LOC at the beginning it is paid off in 2 or 3 months. It pays it off way faster than increasing your payments per year by one. The overall savings can be quite dramatic. Feel free to disagree but understand the program first before you knock it.
Hi Tom,
I took the time to look at the online presentation and I was impressed. The presentation made total sense, unlike others I have seen for similar products. I am however concerned that you say “no additional payments are required,” when it appears that all of the cash left over after bills is being used for additional payments.
If you are able to give me access to the software I would love to do some testing. If this is software you provide free of charge to your clients using you for their personal finance needs then I will fully endorse it myself. If there is a cost involved I will have to do some math and may not be as quick to offer you the same endorsement.
The first example of $250K over 30 years at 6% reduced to 9.1 years is poor. If a person were to use all of their extra monthly funds to pay down the mortgage they will save more money than you are suggesting.
I will always believe any system to help people get out of debt is to their advantage, but if it is something that they can implement themselves I don’t believe it is worth paying for.
It is pretty easy to show that living out of a LOC at 3.25% these days and applying all of your discretionary income against your mortgage will save you money. This is something that an hour of coaching would accomplish. If the cost of the software is what keeps people on track then so be it, but disciplined folks shouldn’t need to incur that cost.
I attempted to work some numbers on the online calculator and the payments didn’t work out for the amortization period and interest rate. Do you include the cost of the software without indicating it? If this is the case it would appear that the software is about $2000 and change. If you could provide the cost of the software and estimated costs for setting up a line of credit, appraisal, legal fees, etc I would appreciate it.
Your email indicates that you are a CFP. Although I do not earn a living in this role I do not believe this software would be any more effective than you sitting down with your clients for an hour and giving them the option to set this up themselves without the software or the cost.
I look forward to being able to test your software and include any costs incurred for the software, LOC, etc.
As I am sure you are aware many of these “debates” have gotten very ugly on different forums. I will keep my comments based on my personal opinion, professional and will not edit your comments.
Nice Article. Have bookmarked your site! Keep it up!
I found your blog on google and read a few of your other posts. I just added you to my Google News Reader. Keep up the good work. Look forward to reading more from you in the future.
Nice no-nonsence post. Peopl too often try to complicate things.
One point I’d like to make though. I understand that ‘mathematically’, it always makes sense to pay the highest debt first. However, there can also be ‘motivational’ or ‘emotional’ reasons why people are in debt and what is mathematically best is not necessarily ideal. For instance, Dave Ramsey says to pay off smaller debts and you can get an emotional boost as you continue to drop every debt (one more gone, “YES!”).
Thanks for your comment David. I would have to agree with you on the emotional side of things. As long as people understand what the difference is $$$ in going this route I am all for it!