Fastest way to pay down mortgage

I got into a fight with my lender after they reneged on their "free refinance" deal they baited me with ahead of the 2008 housing crash. I started throwing my entertainment/toys budget at the mortgage ~$10K or $15K just about every year and got my interest costs down to around what I could have refinanced to, just by eliminating principle. But to the OP, the fastest was selling out of an expensive market, moving to a much more affordable one.

 

I know this won’t necessarily be a popular opinion, but
If you have a low interest rate, might I suggest not working to pay it down prematurely?

I’ll assume youre already maxing out your 401k.

Your home loan is likely some of the ‘cheapest’ leverage you can have. What you would have used to pay down a low interest home loan can instead be invested into other diversified opportunities at a higher yield.

Heck, I’m getting 4.35% on my high yield savings accounts right now.

And your home interest is deductible (within limits).

Set your kid up with a 529 account. Buy Treasury bills. Open a Roth IRA. Buy crazy currency, I mean crypto-currency. Save up a down and buy a rental property.



***I am not a financial Professional, you should consult with your financial advisor or CPA.

 

Request an amortization schedule from your mortgage holder, then have them do a projected amortization schedule if you double the monthly payments and stick to it!
When doubling the payment, always pay with a separate check and in the footnote, write: “apply towards principal only”

also be aware of lower interest rates for a fixed mortgage, you need at least a 2% reduction to even bat an eye at, however, often times, when you see a 2% reduction on 30 year while the 15 year may be 3.25% reduction.. keep in mind during refinancing you will entail fees, typically do up front, but it’s a great way to go from a 30 year to a 15 year, with just a slight bump in monthly payments, foregoing a lot of interest that is typically taxed on you payments monthly, which is front loaded.
Remaining cognizant of interest rates, and using the amortization schedule to double you payments will get you out from under the mortgage loan in a quick decisive manner if you stick to it, even if you can’t, always apply some to the monthly principal, but be sure to write it in and save you cancelled checks!
My 30 year was done in 7, with one refinance with a 3.25% interest cut.. using the above method.

 

Instead of a monthly payment I paid on a weekly basis. Paid off the house three months ago.

 

Good advice here. I got irritated with my 30-year mortgage after about a year and a half and amortized it one night. Refinanced and have been grossly overpaying. It'll be paid off in December after just over 9 years since closing.

 

Throw any extra money at it you can.

 

^this^

I am so late to this party the OP has probably paid off his house already. lol. I know it's hard but a financial plan is the single most important thing your money can have. Just focusing on one liability to the exclusion of all of your debts and assets will cost you serious money in the long run. For example my son's home loan is running at 2.5% ish. If he had an extra $400 / month where should he invest it? Paying down his home loan? NO!!! Today he can buy 'I bonds' from the US government for 6.89% Paying off the house leaves 4.35% interest he could have earned on the table. Make your money work for you instead of you always working for money.

If you don't have a comprehensive financial plan there are so many ways to make one. If you choose to go to a professional you want to use a Fee-Only financial advisor. They have no incentive to sell you anything.

 

The best way to pay off your mortgage is to stay off this site!

 

Also dont get a Tacoma

 

We re-fi'ed our 15-year term at 2.25% in 2021.

 

THX1138
Thanks.

 

He can buy $10,000 worth of I bonds in a calendar year. If you have to buy in the current market and have some equity or savings - you would pay the cash.

 

The OP's question could be rephrased as I have some extra cash to invest, where is the best place? The answer to that question is always where do you get the best return? Paying your mortgage off early returns what ever the rate is, today that is 5.38% and I bonds are paying 6.89%. If interest rates fall and the OP doesn't refinance to a lower rate then paying extra on the house would be the best return, but refinancing probably makes better sense. Here's a tip, rich people use OPM (Other Peoples' Money) when ever they can. If they can borrow from the bank for things like a house and invest their "extra" money in something that returns at a rate higher than what the bank is charging it would be silly for them to pay off the house early.

I ran the numbers on two scenarios

1. $400K loan, 30 year mortgage, 5.38% interest, paying $833/month on the principal. When the loan was paid off then investing the $2,240 monthly payment at 5.38% and the $833 in I Bonds at 6.89%
2. the same numbers but this time investing the $833/month in I Bonds for 30 years.

At the end of 30 years with option #1 the OP would own a house and have $838,192 in the bank. With option #2 the OP would own a house and have $1,000,161 in the bank. Option #2 returns $161,969 more. This is a stupid spread sheet exercise and real life is far more complex, but the point remains paying off the house early might not be the best investment.

 

Either way, good for you on planning to pay off your mortgage. We paid ours off several years before I retired. At present, I owe nothing to no-one. No car payments, no credit cards.

 

Good thoughtful planning

 

All true, though paying off early usually is best for overall peace of mind and that's got value to it.

In my example, we bought in 2004. Though we got a fixer upper we at least knew the honest history and have put a lot of sweat equity in.

Even in those lean years early on we still threw an extra 50-100 a month on the mortgage. Worst case we just sacrificed a little more than usual that month in terms of extras. Our base mortgage was about 900 a month so even at that small sum it still hit the 1 extra payment per 12 months easily.

Over time we've upped that to about $400 a month extra. While we did 2 refinances (one we cashed out the small bit of equity we could to get the house done in vinyl as it desperately needed it), we've kept the minimum payment in the $900 a month range we started at.

I want to say we have 5 years left if we don't pay anything extra right now off my skull. In our house it matters as we are older. Perfect world we'll sell it before paying off and move somewhere much cheaper, but that's in the hands of others than us right now.

 

You're right, and diversification is key to Wwjvd's point. Sorry for the tangent OP but there are periods when paying more principle is not optimal. I would argue that that is not true over the course of your 30 year term however and when you procure enough equity you will be looking for ways to earn >0.0538 on anything over ten thousand dollars should you cash out just now (after fees and capital gains). My point is that there seem to be very few if you don't reinvest in a like kind exchange and are even a little risk adverse.

 

True, that extra 50-100 made more sense to throw on the mortgage especially when it's all we could afford.

We don't carry debt though except maybe one car loan and even that we do all we can to minimize the expense. Not like my sister with 2 car loans and loves to trade every 3 years or less plus a mountain of credit card debt.

 

I can relate. I hate debt. Always have. That's why I never carried any other then the house. We bought 10 years ago and my plan was to pay that off as fast as possible. After talking to a few really good friends who are in a higher station of life then I they changed my mind.

It is basically using other peoples money, the bank in this case, referred to above. Instead of taking a few hundred a month and paying off the mortgage at 3.5% I invested it. The idea is simple. As long as I can make more then 3.5% over the course of the investment I end up ahead. The last 10 years have mostly been a very bullish market so I beat that 3.5% target pretty handily.

It's a compounding scenario so I needed to stick with it. After the first 2 years I was sure it was a dumb as fuck idea. I might as well take the 5.5K and pull it out of my brokerage and pay down the mortgage right? Wrong. BY the fifth year I actually had a pretty decent chunk of change. Now I Have enough to pay off a very large % of what's left on my mortgage. I won't though.

My money is making money. If I give my money back to the bank that's gone for good. This system worked so well for me that when my wife and I bought a new car in 2021 we ended up arguing about it. Toyota had 1.9% financing. She wanted to buy it cash and I wanted to finance it all. We compromised and put 1/2 down then financed the rest over 48 months. In the 24 months since we did that the $10K that would have gone to Toyota has made more money then the $800 in interest over the life of the loan. It's still got 2 more years to compound. Again, I'll end up ahead.

TLDR: I went from someone who hates debt to someone who realizes debt is a tool. Just like a front locker. Use it wisely and you won't end up stuck.

 

That last piece..nailed it. It can be used wisely, despite us being conditioned to think debt is ALWAYS a 4 letter word.

I financed my truck for 60 months having a good down payment (traded my 2006 Colorado). Had a good rate already from my credit union and the guy started the financing spiel. I figured I'll just reel the fish in after he's done. Tells me he ran me and doesn't have to tell me I have excellent credit. I replied "I was always taught to guard my credit with my life, as in many ways it is my life". Let him go on and was just about to set the hook when he said "You are confirmed for 0.9%". I kept my big mouth shut as my credit union rate was 3.5% I was going to have to finance that remainder regardless as we weren't planning to buy a vehicle at that point and still had a small payment for another year on my wife's vehicle.