How to pay off a mortgage faster

Extra principal payments

The required payment covers interest and a slice of principal. Anything extra has to be applied to principal or it does not shorten the loan. The CFPB says you may be allowed to make extra payments on the mortgage’s principal, and that you should check whether the loan allows them and make sure they are applied to the loan’s principal rather than interest.

On the monthly statement, the explanation of amount due shows principal, interest, and escrow. A note in the memo line, or the servicer’s form for additional principal, is how people tell the servicer what the extra is for. Escrow is not principal. Adding money that the servicer parks in escrow does not pay the loan down.

The full-payment calculator has an optional extra monthly principal field so you can see it next to taxes and insurance. The calculator above is the one that estimates months and interest.

Biweekly payments

Half the monthly payment every two weeks is 26 half-payments a year. Twenty-six halves equal thirteen full payments. The thirteenth payment is the extra principal that can shorten the term. The CFPB’s definition of a bi-weekly payment says to read the note for a prepayment penalty and to ask whether the servicer charges a fee for the plan. It also says one extra monthly payment a year can pursue the same goal without that fee.

A third-party program that drafts the money for you can charge a setup fee and a fee on each draft. Those fees are not principal. If you want the thirteenth payment, you can send it yourself and tell the servicer to apply it to principal. Do not assume a biweekly draft is free, and do not assume it pays the loan off on a date a salesperson named.

Lump sums

A one-time amount toward principal, from savings or from a bonus, lowers the balance on the day it is applied. Later interest is calculated on what remains. The calculator treats a lump sum that way: it reduces the balance once, then keeps charging the same principal-and-interest payment, plus any extra monthly amount. That is not a new payment schedule from the servicer.

Ask for a payoff or a principal-only posting in writing if the amount is large. A payment the servicer treats as “paid ahead” sits there until later months, and the balance does not fall. The same prepayment question applies: read the note before you send a large extra amount.

Recasting

Recasting is optional and it is not offered on every loan. After a lump sum, some servicers will recompute principal and interest from the new balance, the same rate, and the years still left. The payment falls. The term does not get shorter unless you keep paying the old, higher amount. A recast can have a fee. The only reliable source for the fee and the minimum lump sum is that servicer.

The calculator on this page does not model a recast. If the goal is a lower required payment after a lump sum, ask the servicer whether a recast exists on this loan. If the goal is fewer months, extra principal on the existing payment does that without a recast.

Refinancing is a different loan

A refinance pays off this note with a new one. The new rate, the new term, and the closing costs are the comparison. A shorter term at a similar rate raises the monthly principal and interest and cuts the interest over the life of the loan. A longer term can do the opposite: a lower monthly payment and more interest over time. A lower rate does not tell you the result until you include the costs to get it.

Those costs belong on the Loan Estimate, next to the projected payments. Compare that page with the current note. Extra principal on the loan you already have does not reset the rate and does not add a new set of closing costs. Neither path is automatically the one that costs less. The calculator above covers extra principal and a lump sum only.