Yes, you can make a principal-only payment on a mortgage to pay it off faster and save on interest, but you must explicitly tell your lender to apply extra funds to the principal, otherwise, they might apply it to future interest or hold it in escrow. This usually involves using specific options in online portals, making phone calls, or writing "Principal Only" on the memo line of a check, ensuring your regular payment is made first.
The 3-7-3 Rule in mortgages isn't a loan type but a federal timeline from the TILA-RESPA Integrated Disclosure (TRID) rule, ensuring borrower protection by mandating disclosures within 3 business days of application, a 7-business-day wait between the initial Loan Estimate and closing, and another 3-day wait if significant changes (like APR) occur, giving borrowers time to review costs before committing to a loan.
Another effective strategy that can really level up your payoff game is principal-only payments. Not only can principal-only payments help you pay off your debt faster, but they can also save you a surprising amount of money on interest over time.
To pay off a 30-year mortgage in 10 years, you must make significantly larger payments by refinancing to a shorter term (like 10 or 15 years) or by aggressively making extra principal payments through methods like rounding up payments, making bi-weekly payments (which adds one extra payment yearly), using bonuses/tax refunds, and ensuring extra money goes directly to the principal, requiring substantial budget adjustments and discipline to significantly reduce the principal balance much faster than the original schedule.
Many lenders offer the option to put money toward your principal. Select that option and specify your amount and date. Phone payments: You can call your lender to make an additional payment toward your principal.
When you pay down the principal on a mortgage, you reduce your loan balance faster, which lowers the total interest paid over the life of the loan, builds equity quicker, and can help you pay off the mortgage sooner. Since interest is calculated on the remaining principal, a smaller principal means less interest accrues, shifting more of your future payments toward the principal itself.
The main cons of paying off a mortgage early include losing the mortgage interest tax deduction, facing opportunity costs (missing higher investment returns), and reducing your financial liquidity (tying up cash in your home instead of having it accessible). You might also incur prepayment penalties (though rare on conventional loans), and it can slightly lower your credit score by removing a large, established debt, according to U.S. Bank.
You can't always make a principal-only payment because lenders have specific rules, often requiring you to pay the minimum (which covers interest first) or apply extra funds specifically to the principal, sometimes online or via a special check. If you just send extra money, it might sit in an escrow account or cover future interest, but contacting your lender or using their online tools to designate an "additional principal payment" ensures it goes to reducing your balance faster and saving on interest.
A household should allocate no more than 28% of their gross income to housing expenses. Total debt payments, including housing, should not exceed 36% of gross income under the 28/36 rule. Lenders often use the 28/36 rule to evaluate creditworthiness and loan approval.
There are some easy steps to follow to make your mortgage disappear in five years or so.
“Paying off your mortgage early seems impossible but it is completely doable and people do it all the time, but how can you do it and why would you want to put in the extra effort? Paying off your mortgage early will rev up your wealth building.”
Suze Orman strongly advocates paying off your mortgage by retirement for financial freedom and peace of mind, but her advice on how varies by situation, often prioritizing a solid emergency fund and retirement savings first, especially if interest rates are low. While she pushes for paying down debt aggressively (even reducing retirement savings beyond the 401(k) match), she cautions against draining savings for low-interest mortgages if it leaves you vulnerable to job loss or emergencies, suggesting you should have a strong safety net before using savings to pay it off.
Tax considerations: You may be able to deduct home mortgage interest from your taxes. 2 However, if you pay off your mortgage, you won't be able to utilize this deduction, which could increase your taxable income. To learn more about the tax implications consider speaking with a tax advisor.
The average age to pay off a mortgage in the U.S. is around 62, with many becoming mortgage-free in their early 60s, coinciding with or just after typical retirement age, though figures vary by source. While some financial experts suggest paying it off by 45 for aggressive investing, data shows a significant portion of homeowners, especially older ones (60+), are mortgage-free, but increasingly, older adults (60s, 70s, 80s) carry more mortgage debt than previous generations, according to Marketplace.
Not Putting Extra Payments Toward the Loan Principal
Otherwise, you may not see much progress in your early mortgage payoff efforts because your extra payments will be absorbed by interest.
Tips to pay off mortgage early
It's a trade-off: paying off a small mortgage offers security, frees up cash flow, and saves interest, especially with high rates, but keeping it allows you to invest extra money (potentially earning more), keep liquidity, and possibly benefit from the mortgage interest tax deduction. The best choice depends on your interest rate (high rate favors paying off), risk tolerance (security vs. investment growth), and need for liquid cash.