Paying off your mortgage can be one of the best financial moves you’ll ever make. For most people, a mortgage payment is the single largest, monthly expense they have. Some argue that paying off a mortgage early doesn’t make sense because you lose a good tax write-off. This isn’t a well conceived idea. An expense is still an expense! A mortgage tax write-off merely lowers the effective payment you make. For example, if you’re paying $2,000 per month and use the interest as a tax write off, you might save $4,800 per year. Spread out over twelve months, this equals $400 per month in tax savings. So your effective house payment becomes $1,600 ($2,000 less $400.) You’re STILL paying $1,600 per month! Wouldn’t it be better to avoid paying anything per month?

The Bi-Weekly Option

The bi-weekly option involves setting up an arrangement with your lender to deduct on-half of your monthly payment every two weeks, directly from your bank account. Since there are 52 weeks in a year (which means 26 bi-weekly payments), you’ll have paid one extra, full-payment for the year. The lender then pays down the principle of the loan with this extra payment. On a 30-year loan, making one extra payment each year takes ten years off the mortgage. In other words, your mortgage will be paid off in 20 years instead of 30.

Refinance to a Shorter Term

An obvious way to pay off your loan sooner is by refinancing to a shorter term, particularly if the rate is substantially lower. Here’s how that might work:

• 30-year loan for $150,000 at 5.5% equals a monthly payment of  $    851
• 15-year loan for $150,000 at 4.0% equals a monthly payment of  $ 1,225

This means on a 15-year loan your payment would be higher by $344 per month.

This is about the equivalent of a typical car payment. Just think, by paying an extra $344 per month, your home would be paid off in 15 years instead of 30. That means you would save 180 payments! At $851 per month, this means you would save $153,180 (180 times $851). This sounds like college tuition at an Ivy League School!

Refinance to a Lower Interest Rate, But Keep Making the Old payment

This method is a bit harder to understand but is easy to do. Remember what we said about making an extra payment each year and how that would cut your payoff term from 30 years to 20 years. Here’s another way to do it: (Let’s assume you have a $200,000 30-year loan at 5.25% and you refinance it into another 30-year loan but at 4.25%.)

• Old 30-year loan for $200,000 at 5.25% equals a monthly payment of $  1,104
• New 30-year loan for $200,000 at 4.25% equals a monthly payment of $  983

By doing this you will save $121 per month, but instead of keeping this money you apply it to the new loan each month, thereby reducing the principle by $121 each month. You can look at it another way: you lower your interest rate and payment, BUT keep making the old payment on the NEW loan. In this case each year you would be paying an extra $1452 per year towards the principle balance ($121 times 12.) Your 30 year loan would be paid off in less than 20 years.

Paying off a home loan early takes discipline and a commitment to getting out of debt. Speak with your real estate broker or contact a loan broker or bank and go over options for paying your loan off sooner. The best time to set up a plan is when interest rates are low or have lowered.

If you want to make the calculations yourself, you’ll need a loan amortization calculator which you can find in most stationary or office supply stores.