How To Pay Off Your Mortgage Early: A Complete Guide

From the moment a new homeowner signs onto a mortgage, they typically look forward to the day when they’ll pay it off. But as tempting as it is to save on interest and make as many payments as possible, it’s important to first look at your financial situation before deciding how or whether to pay off your mortgage early.

Let’s take a look at some of the most common strategies a homeowner can use, the steps of the payoff process and the answers to some frequently asked questions.

5 Strategies For Paying Off Your Mortgage Faster

There are several strategies a homeowner can employ to pay down their mortgage ahead of schedule. While each comes with certain benefits, the right option will depend on your individual circumstances. Up next, we’ll look at five strategies, one at a time.

1. Put 20% Down

Before you even get a mortgage, you can prepare to pay it off early by making a 20% down payment on your new home. With a smaller down payment, you may be required to pay private mortgage insurance (PMI) on a conventional loan. However, by putting 20% or more down, you’ll take out a smaller loan and you won’t be required to pay PMI. Not having to make this extra expense each month can help you make larger payments toward your mortgage loan and ultimately pay it off faster.

There’s also the additional benefit that, along with your credit score, your down payment is one of the biggest factors affecting the interest rate you get. A higher down payment can help you secure a lower mortgage rate.

2. Reduce Your Loan Amount

One of the most effective ways to pay off a mortgage early is reducing your loan amount. If you have a mortgage that is stretching your budget, consider getting a smaller one that’s more affordable. While this might mean you need to downsize or relocate to an area that’s not so expensive, a smaller principal loan balance is much easier to pay off early. 

3. Make Extra Mortgage Payments

Making extra payments toward your mortgage can also help pay it off faster. While some people choose to make additional payments on a consistent basis, others do so whenever they come into some extra cash.

No matter when you decide to make extra payments, tell your lender that the money is going toward your loan amount. If you fail to make this clear, your lender could allocate the additional funds to pay off mortgage interest or assume you want to apply the funds to next month’s payment.

4. Make Biweekly Payments

Making smaller, biweekly payments, as opposed to traditional monthly payments, is another way you can pay off your mortgage faster. With this method, you can shave months off your mortgage term and save thousands of dollars in interest because you’re effectively making one full, extra mortgage payment per year that gets applied directly to your balance. And, if you get paid biweekly, making payments biweekly may just make sense because you can schedule your payments around your paydays.

5. Refinance Your Mortgage

Refinancing your mortgage enables you to trade in your current loan for one with better terms, like a lower interest rate and/or shorter term length. Shorter-term loans usually come with lower interest, but if interest rates are lower than when you took out your original loan, you may be able to get a reduced rate regardless.

The Step-By-Step Process Of Paying Off Your Mortgage

After using one of the above strategies for several years, you might be ready to reach the finish line and make your final payment. However, it’s not as simple as signing into your account and shelling out the remaining balance.

Title companies often require a payoff statement, often called a payoff letter, from the lender before transferring the deed to your name. A mortgage payoff statement is a document that shows exactly how much money is required to pay off your mortgage. Depending on the circumstances under which you pay off your mortgage, the process could take several days.

Let’s review the steps of paying off your mortgage so that when the time comes, you’ll know what to do:

1. Request a payoff letter from your lender. Once you’re ready, contact your lender to let them know you want to pay off the remaining balance of your mortgage. But make sure you only request the payoff letter when you’re ready. Additional payoff letter requests may incur extra fees.
2. Make the payment. Next, you can simply wire or transfer funds to your lender as outlined in the payoff letter.
3. Secure refunds if necessary. You can now cancel your automatic monthly mortgage payments, update your mailing address if it has changed and follow up on your escrow account to determine the refund amount.
4. Send the Discharge of Mortgage letter to your county. Research your local regulations around this process and ensure that the Registry of Deeds receives your letter.
5. Save for ongoing payments. Even though your loan is paid in full, you’ll still need to pay your homeowners insurance. Contact your insurance company and have them remove any billing information associated with your lender. You’ll also need to save up for a lump-sum property tax payment.
6. Celebrate paying off your mortgage. Finally, the best step of the process. You’ve paid off your mortgage and deserve to kick up your feet and celebrate. Now you can use the extra money to save or make payments in other areas, like putting money into your emergency fund or paying off credit card debt.

Keep in mind: Parts of the payoff process are the same for every lender, while other details are specific to Rocket Mortgage^®. Rocket Mortgage customers can also request their payoff through our pay-by-phone system by calling (877) 373-7433. You can do this whether you’re paying off or requesting a quote in writing, or if you’re just wondering how much is remaining to pay off.

Paying Off Your Mortgage Early FAQs

Below are a few commonly asked questions about paying off your mortgage early, the payoff process in general, and more.

What does a payoff statement include?

The payoff letter lists the final payment amount, including interest and fees like the county recording fee and statement fee. The fee amounts depend on state and local laws and regulations, along with how many times a payoff quote was requested. Your lender might also enforce a prepayment penalty, which will be listed with other lender fees.

How do I make my final mortgage payment?

Along with the final payoff, the payoff letter will have a good-through date. This means the total amount you need to pay off is only good through that date. Additional interest accrues after that date. If you pass the good-through date without payment, you must request an updated payoff letter.

Should I pay off my mortgage early?

Whether it’s best to pay off a mortgage early depends entirely on the homeowner and their unique financial situation. There are great benefits in the long run, the biggest being no longer having a mortgage. But if you’re going to be strapped for cash by making extra payments or refinancing to a shorter loan term, an early mortgage payoff may not be right for you.

How do I get my escrow refund?

If there’s money left in your escrow account after you’ve paid off your mortgage and/or you overpaid the loan (by paying before the good-through date, for example), the extra money will be sent back to you.

If you’re refinancing with Rocket Mortgage, we may net your escrow. This means we’ll take whatever money is left in your escrow account and apply it toward your payoff amount.

Again, this will depend on your loan type. Read the fine print on your loan to understand what happens when you pay off your mortgage.

Sometimes the lender must hold money in your escrow account after your loan has been paid off. This is because mortgage insurance is paid at the end of the period you’re paying for instead of upfront. Your lender may hold on to some of your escrow funds to cover those last costs if you have mortgage insurance.

If you are due an escrow refund on your Rocket Mortgage loan, we’ll process it within 10 – 12 business days from when we receive the payoff. You can choose to have it sent as a check or deposited directly into your bank account.

What happens after I pay off my mortgage?

After your mortgage has been paid off, it must be recorded with the county by sending what’s called the Discharge of Mortgage document. Your lender is required to write up the document, but what happens next depends on local regulations.

Some states require the lender to send the document to you, while others require the lender to send it to the county. Regardless, the burden is on the lender to draw up the document, but it’s on you to make sure it’s sent to your county’s Registry of Deeds.

Contact your lender to find out what your state requires for the Discharge of Mortgage and to get answers to other questions about your loan.

What are my ongoing monthly expenses?

Paying off your mortgage is no small feat, and it changes the way you’ll financially maintain ownership of your home. Lenders will often consolidate property taxes and homeowners insurance fees into your monthly payment through the escrow account. Once your relationship with the lender is dissolved, you’ll start making those payments yourself.

If your lender required homeowners insurance, you’re no longer under the obligations of the loan, so you can opt out. Of course, homeowners insurance is a financial safeguard against damage to your property in case of natural disasters, accidents, robberies and more, so it’s a good idea to keep it. To do so, contact your insurance provider to remove your lender’s payment information and set up your own auto pay.

For the lifespan of your mortgage, you’ve paid property taxes in monthly installments. Then, the lender pays the lump sum annually or semi-annually to relevant tax authorities.

Now, you’ll pay your local tax office directly. Don’t be surprised if you receive a large bill in the mail. It’s easy enough to estimate and save for your property tax payment.

The Bottom Line: Paying Off A Mortgage Early Has Benefits But Isn’t For Everyone

It’s never too early to think about how to reinvest what you’re saving in monthly mortgage payments if you’ve paid your mortgage off ahead of schedule. After celebrating a financial milestone, it’s a good idea to start working toward others. You might decide to pay off other debt, increase your retirement savings or use the savings to make home renovations to increase property value with some sweat equity.