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  • Dave Kinzer

The Secret Your Bank Doesn't Want You To Know

Updated: May 11, 2020

Revealing someone else’s secret is usually frowned upon, but I’m going to do it anyway. It’s your bank’s secret, and it concerns your 30-year mortgage: You don’t actually have to wait 30 years to pay it off.

You can pay it off whenever you want—tomorrow, even. In short, you can pay it off early. How early is up to you.

Pay off your mortgage early
"Ugh... 359 more payments to go..."

Why would you want to pay it off early? The main benefit is that you will significantly reduce the amount of interest you’ll pay to the bank.

According to Bankrate's mortgage calculator, someone who takes out a 30-year, $250,000 mortgage at 3.95% will end up paying a total of just over $427,000. That means over $177,000 in interest to the bank. That’s enough money to buy an extra house!

Even the amount of interest paid on a $150,000 mortgage is substantial. Do the math and you’ll see you’re paying $106,000 in interest.

To pay your mortgage off early, first contact your bank and ask them about prepayment penalties. These usually only apply if you pay your mortgage off in the first three years.

If that doesn’t apply to you, then tell your lender you want to increase your monthly mortgage payment. This is especially easy to do online. Make sure your extra payment is applied to the principal owed, not to the interest.

How much extra should you pay? One method people use to decide is to take their monthly mortgage payment and divide it by 12. Then you add that total to your monthly payment. By the end of the year, your total amount owed will have been reduced by the amount of 13 payments even though you only made 12 payments.

For example, a $150,000 30-year mortgage will be paid in monthly installments of $711. Divide $711 by 12 and you get $59. Add $59 to your monthly payment of $711, and you get $770.

If you paid $770/month right from the start, you would save over $16,000 in interest and you would reduce your 30-yr mortgage by four years. Not bad for what amounts to an extra $2/day each month.

If you can’t afford an extra $59 each month, then start smaller. Adding just $25 to the mortgage in this example would still save over $7,500 and reduce the length of the mortgage by 22 months.

If you want to start really small, just add $3 each month. You’d still save $977 in interest, and your mortgage would get paid off two months early.

The point is, add something to your mortgage payment. Set it up to be automatically deducted from your checking account so you won’t forget or chicken out. Remember, you don’t have to add hundreds to your monthly payment to make a difference. It’s fine to start small by adding an extra $10, $20, or $25 each month.

A method for saving thousands of dollars and paying off your mortgage years early? Now that’s a secret worth telling.

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