With cash in hand, you can pay off your loan in full at any time.  Or, you can make extra payments at intervals to get mortgage-free earlier, often with significant savings in interest. Most mortgage loans don’t have a pre-payment penalty (check your closing documents).

Retiring a mortgage early has the benefit of freeing up funds, allowing you to gain ground on other financial goals. You’ll also gain equity faster, equity you can tap into with a home equity line of credit (HELOC). And for many, paying off mortgage debt brings a greater sense of security. But consider these strategies only after higher interest rate debt is paid off. Here’s how to resolve debt earlier:

• Pay in full, if you have the extra cash. Those who refinanced when 30-year mortgage rates were 3% might not choose this option since financing may not be that cheap for the foreseeable future.
• Make bi-weekly payments. By paying half your monthly amount every two weeks, you’ll make 13 full payments over the year instead of 12. That extra payment goes directly to principal, reducing interest and shortening your loan. Be sure each payment is applied when it’s received, not monthly.
• Make extra payments on the principal. If your lender offers this option, you can designate a little extra on each mortgage payment to be put toward paying your principal¹ or, if you receive a chunk of money like a tax refund, you can make a more substantial extra payment. A pay raise also offers a source for increasing the payment amount.
• Refinance. Depending on the market and your interest rate, refinancing can be an option. Going from a 30-year to a 15-year loan will cut the total interest you pay, as well as the time frame for retiring your mortgage.²

Is there a downside?  It’s important to know the tax implications of paying off your loan as you may lose a valuable tax deduction. You also lose some liquidity, as your home is a non-liquid asset.³ And there’s the fact of “opportunity cost,” meaning that the funds you use to pay down your mortgage are not available for a potentially higher return investment, contribution to a retirement account, or redirection to a college fund or real estate property.

Contact your mortgage servicer or a financial professional, such as a CFP® practitioner, to answer questions, assess the financial implications of paying off your loan, and advise on the best course of action given your financial position, priorities, and goals.

1. myhome.freddiemac.com/blog/homeownership/20190319-faster-way-to-be-mortgage-free
2. Ibid
3. www.bankrate.com/mortgages/early-payoff