How to Pay Off 30 Year Mortgage in 15 Years

Owning a dream home is everyone’s wish. However, the high price of housing is an obstacle for most people. According to the St. Louis Federal Reserve, in 2024, the average housing price was $492,300. Refinancing a 30-year fixed-rate mortgage for interest rates in 2024 is above 7%, while a 15-year fixed-rate mortgage is below 7%. Therefore, some people are also interested in paying off their mortgage payments earlier, for example 15 years. If you decide to pay off your mortgage payments early, you will be free from debt faster, and you will also be able to save a lot on interest costs. So, how to pay off a 30-year mortgage in 15 years? Find out the information in the text below.

Pay Off Your Mortgage Loan Early – Is it Possible?

Yes, you have the ability to pay off your mortgage early. If you pay your mortgage early then you will spend less money on interest. That way, you can save money on your home loan in the long run. And, you can also immediately allocate some of your money to your child’s education or retirement savings. However, there are a few things you should know before deciding to pay your mortgage early. It should be noted that paying off your mortgage early will incur penalties or fees.

Most mortgages have an early repayment penalty or fee. Usually, the highest early repayment penalty or fee is around 2% if the loan is repaid in the first year. However, the penalty charged to you will decrease with the length of time you have the mortgage loan. So, in essence, if you pay off the mortgage loan early in the first year, then you will be charged a larger penalty than paying off the loan early in the 4th or 5th year.

When you first decide to take out a mortgage loan, you might think that a 30-year mortgage is the best option because it matches your income. But over time, your finances may change. You may experience a significant increase in your income and consider paying off your mortgage loan early, which will potentially save you money on interest. For example, let us say you have a $300,000 mortgage loan with an interest rate of 4.5%. You will pay a total of $247,220.13 in interest over a period of 30 years. If you make regular payments on that mortgage loan, after adding the total interest to your loan balance, it will cost you $547,220.13 to fully own your home in 30 years. Now, if you pay off the mortgage loan early, the interest you must pay on the mortgage loan will be reduced. This is the reason why many people are tempted to pay off the mortgage loan early.

When you really want to pay your mortgage loan early, make sure you know and understand mortgage amortization and how your mortgage payments work. For information, mortgage amortization is the process of repaying a mortgage loan. Amortization refers to how payments are applied to principal and interest. Therefore, before deciding to pay off your mortgage loan early, it is important for you to learn about amortization or how your mortgage loan is paid off over time and what kind of penalties you may have to pay if you want to pay off your mortgage loan early.

The Ways to Pay Off a 30-Year Mortgage in 15 years

There are several ways you can pay off your mortgage faster than the 30-year term. Of course, there are benefits to each approach you take. Study them carefully and choose the one that suits your current financial position and your ability to pay higher monthly payments.

Here are some options to pay off your mortgage early:

Pay Extra Each Month

The first thing you can do to pay off your mortgage loan early is to pay extra each month. Allocate your remaining funds at the end of the month and use them for an extra principal payment. If you pay the principal with an extra monthly payment, it will lower the amount of interest you incur over the life of the loan. By doing so, you will also save a little money. You can divide your monthly payments by 12 and at the end of each month make a separate payment of “principal only.” Alternatively, to help speed up the repayment of the mortgage loan, you can also round up each payment, for example, instead of $865, pay $900.

Pay Bi-Weekly

You can also make your mortgage loan payments every two weeks. If you are a worker who gets paid bi-weekly, then it is in line with this payment method. By paying your mortgage loan bi-weekly, it means that you pay half of the monthly amount every two weeks. It means that you make 26 half payments, or 13 full payments that is one extra payment per year. Before you decide to pay your mortgage loan bi-weekly, you should check with your bank or mortgage lender to make sure that they will accept your bi-weekly mortgage loan payments.

Pay Extra Mortgage Loan Every Year

At the end of the year, there is usually something called a year-end bonus. You can use that bonus to pay off your extra mortgage loan. Alternatively, you may also get an inheritance or unexpected money that will allow you to pay off the extra mortgage loan. However, remember that the earlier you do this, the bigger the impact. Generally, in a 30-year mortgage loan, about half of the total interest you incur will accumulate in the first 10 years of your loan. That is because your interest rate is calculated based on the high principal amount you owe in the early years. Therefore, you should pay off your 30-year mortgage loan in 15 years.

Refinancing with a Short-Term Mortgage

Mortgage refinancing is making a new loan to replace your current mortgage loan. By refinancing, you can cut your monthly costs and pay off your mortgage loan faster. When you choose to take out a shorter mortgage term, it means that your mortgage loan will also be paid off faster. Refinancing to a 15-year mortgage loan means your monthly mortgage loan payments will be higher, but you will be able to save on interest in the long run. In addition, 15-year mortgage loans also tend to offer lower interest rates than 30-year mortgage loans. However, there is also a cost that you need to pay for refinancing. Therefore, before you decide to refinance, ask yourself whether you can afford the higher monthly payments. And, whether this is the best option for you.

Recast Your Mortgage Loan

To lower your mortgage loan monthly payments while maintaining your interest rate and avoiding refinancing fees, you can reorganize your mortgage. Typically, refinancing a mortgage loan will cost you around $200-$300. This involves paying off the mortgage loan in one lump sum against the principal amount. The mortgage lender will change your amortization schedule to create your new balance. As we said before, make sure you learn and understand about amortization. We think that it is a good idea to lower your mortgage loan payments without having to change your interest rate.

Loan Modification

If you are behind on your loan payments due to job loss, you can take out a loan modification program. This loan modification program refers to changes made by the lender to an existing mortgage. This could mean a reduction in the interest rate or a change from an adjustable mortgage to a fixed-rate mortgage. Keep in mind that this program is only for borrowers who have fallen behind on their payments, such as unemployment, disability, or other loss of income.

Pay off Other Debts

Try to manage your debts well. You can pay off debts with higher interest rates first. You will probably pay 15% interest on your credit card bill and 5% on your mortgage loan. Before focusing on mortgage loans, try paying off payday loans and collateralized loans as they usually have high interest rates. If you have multiple loans, a debt consolidation plan could be a good idea. To consolidate your loans, you can use a financial advisor or non-profit counsellor. In addition, you can also utilize a What is a Home Equity Line of Credit (HELOC) as another powerful way to pay off your debt.

Downsize Your Home

Another way to pay off your mortgage is to buy a house according to your budget and ability. If you feel like you cannot afford your mortgage, you can downsize your home. Try to buy a smaller house so that your monthly payments will be smaller. Alternatively, you can also move to an area that offers more affordable housing. When looking for a home, try to consider things like your budget, closing costs, whether there are health risks, whether the home is prone to earthquakes or flooding.

You should consult a trusted real estate agent who can help you provide references regarding home purchases. A trusted real estate agent will definitely know how the market works and how to take advantage of home buying opportunities. In addition, you can also ask them to help you haggle the price of the house down to its true value. If you have found a suitable home, make sure you pay your down payment as much as possible to reduce the interest rate.

Should You Pay Off Your Mortgage Faster?

Whether you should pay off your mortgage early depends on the interest rate you are paying. And, before you start using all your extra money to pay off your mortgage loan, make sure that early repayment is in line with your financial goals. Usually, higher mortgage rates will encourage homeowners to pay off the loan faster.

There are several benefits that you get if you pay off your mortgage loan faster, such as Saving money and increasing your available equity. By paying off your mortgage faster, you are paying less interest. In addition, paying off your mortgage loan faster can also increase your equity. For your information, home equity is the percentage of your home you own compared to the amount you owe on your loan. The more equity you have in your home, the more profit you are likely to make when you sell it.

When you decide to pay off your mortgage loan early, you should consider several things such as:

- You can pay off your credit card debt or loans with higher interest rates.
- Make sure that you can build an emergency fund. Having an emergency fund is very important.
- You also can save your money to your retirement with 401(k) or IRA accounts.
- Do not forget to save money for your child’s education.
- Make sure that by paying off your mortgage loan early, it can contribute to other investment chances.

Advantages and Disadvantages of Paying Off Your Mortgage Early

Here are some advantages of paying off your mortgage early:

Free up cash flow

If you have more cash flow, it will definitely reduce stress and help you meet your mortgage loan repayment obligations.

Pay less Interest

By paying off your mortgage loan early, it means you pay less interest. By paying less mortgage interest, you will be able to pay off other high-interest debts or save the cash in an emergency fund or education savings.

Stop paying PMI

Once you have reached 20% equity in your home, you will be able to eliminate Private Mortgage Insurance (PMI). For your information, this Private Mortgage Insurance (PMI) protects the mortgage lender from default. You need to eliminate the extra payments as soon as possible.

Here are some disadvantages of paying off your mortgage early:

Lose mortgage tax deduction

As a homeowner, you will be able to deduct the mortgage interest you pay from your taxable income. If you pay off your mortgage loan, you will lose this benefit. The tax bill will also become larger in the future.

Can earn more by investing

If you have a low-interest mortgage, then the decision to pay off your mortgage loan early is not a good idea. Instead of paying off your mortgage, it is better to use the money for investment. With investments, you will be able to make bigger profits.