How to pay off your mortgage and save thousands in interest

The fastest way to pay off your mortgage is to make extra payments toward your principal balance. Adding a twelfth of your payment each month gives you the chance to make 13 payments a year. You can also contribute any additional money you can afford monthly, plus lump sums when you have them. Every extra dollar paid reduces interest, potentially saving you thousands over the life of your loan.

Any time you make an "extra" mortgage payment, it's important to let your loan servicer know that you want these funds to be applied toward your principal loan balance. This doesn't happen automatically.

A little goes a long way, and you don't have to double your monthly mortgage payment to see a payoff from paying ahead.

How to pay off your mortgage faster: 3 strategies

Here are a few ways to pay ahead on your mortgage and cut down on interest:

1. Pay your monthly mortgage payment plus an extra 1/12

Why this works: It may not sound like a lot to add 1/12 of a payment to your monthly mortgage, but this simple strategy delivers results over time.

• You'll make 13 mortgage payments each year instead of 12

• You could potentially shorten your loan term by several years, depending on when you start

• The additional amount may be manageable within your monthly budget

By making this small adjustment to your payment schedule, you're effectively paying an extra month each year without feeling a significant pinch in your monthly finances. This strategy works particularly well for homeowners who want a "set it and forget it" approach to saving money on their mortgage.

2. Pay $50 extra toward your monthly mortgage

Why this works: Even paying $50 extra a month can help to chip away at your principal balance, saving you in interest and potentially taking years off your loan.

• The fixed dollar amount makes budgeting straightforward and predictable

• You'll see your principal balance drop with each monthly statement

• The interest savings accelerate over time as your principal decreases

For many homeowners, adding $50 to their monthly payment causes minimal strain in their budget, yet the long-term impact is substantial. Years before your original payoff date, you could be enjoying complete ownership of your home and the financial freedom that comes with it.

3. Pay one-time lump sums when you can afford it

Why this works: Occasional larger payments directly attack your principal balance without requiring a change to your monthly budget.

• Tax refunds, work bonuses, and investment dividends offer perfect opportunities

• Even irregular lump sum payments will reduce your total interest paid

• There's no commitment to maintain a higher monthly payment

This strategy works well for people with variable income or those who prefer to stay flexible in their monthly budget. While less predictable than the other methods, applying windfall money to your mortgage can still make a sizeable difference in your overall interest paid and loan duration.

Considerations: Before you start paying ahead on your mortgage, it's a good idea to use any additional funds you have to pay down high-interest debt, like credit cards. You also might not benefit from paying ahead on your mortgage if you don't plan to stay in your house for more than a decade. Talking to your loan officer about the pros and cons of paying ahead can clear up any questions.

When refinancing to a shorter term makes sense

Refinancing to shorten your loan term can condense your repayment schedule, reduce your total interest paid, and help you build equity faster. While your monthly payment will increase, the overall interest savings may be worth it. This strategy is often used by homeowners who've advanced in their career or who want to become mortgage-free by retirement.

This option may be beneficial if:

• Your financial situation has improved since you first purchased your home

• You plan to stay in your home long enough to make up the closing costs

• You're comfortable with the higher monthly mortgage payment

Your loan officer can help you count the cost by calculating how much you'll save by reducing your loan term. The ideal refinancing scenario will allow you to pay off your home faster while still maintaining financial security in other areas.