How To Pay Off Your Mortgage Early: 5 Simple Ways 


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How can I pay off my mortgage faster?

This is a question you will inevitably confront in pursuit of your own financial security. Your first intuitive response is to get out of debt as soon as possible. In our minds, the concept of making monthly payments for an extended period of time is antithetical to freedom. Therefore, we seek to liberate ourselves as quickly as possbile.

Let’s explore how you can achieve this…

How To Pay Off Mortage Faster

If you take the decision to pay off your mortgage early, all you’ll need to do is pay more principal. Paying mortgage principal early is a powerful money save as small debt reductions compound dramatically over the tenure of the loan. Thus, eliminating many times the payment in interest.

How Much Can You Save by Paying Off Your Mortgage Early?

Mortgage Assumption: 25-year loan, fixed rate, fully amortizing, Ksh 10,000,000 mortgage at 12% creating monthly payment of Ksh 105,322.

Let’s consider a 25-year mortgage, Ksh 10,000,000 at 12% has a monthly repayment of 105,322, with only Ksh 33,333.33 going to the principal in the first month.

If you add just an additional Ksh 10,000 to the monthly payment, you will literally double the principal paid in the beginning to eliminate 70 payments over the life of the mortgage, save Ksh 6,000,820 in interest costs, and shorten the payoff time from 30 years to 25 years to 19 years.

Let’s visualize it…

Ksh ‘000Current PaymentsBi-Weekly PaymentsCurrent Payment Plus Ksh 10Bi-Weekly Payment Plus Ksh 10
ScenarioA conventional 25-year, fully amortizing fixed rate mortgage paid monthly.Same Mortgage but with bi-weekly paymentsSave mortgage, but you add Ksh 10 every month to your payment.Same Mortgage, but you pay bi-weekly and include an extra Ksh 10 payment per month
Total Interest CostKsh 21,596Ksh 17,593Ksh 15,595Ksh 13,719
Amount Saved Over Life of Loan @12%Ksh 0Ksh 4,002Ksh 6,000Ksh 7,877
Years to Pay Off (Approx.)25 Years23 Years19 Years16 Years

Not bad for an extra Ksh 10,000 per month…

Strategies for Early Repayment

If these numbers sound appealing to you, there are various strategies you can deploy for early mortgage payoff. Starting from the simplest, moving to the most complex:

1. Adding Pinicipal to Your Current Monthly Payment

If your mortgage doesn’t have an early prepayment penalty, the simplest early payoff strategy is to simply add a principal to monthly payments. You can pay a one-time lump sum (perhaps proceeds from selling an asset) or just add a little extra monthly (proceeds from a raise or bonus). The concept is to use money that you can live without and won’t miss if you used it to pay down your principal.

2. Biweekly Payment Schedule

If you can, rather than make one mortgage payment per month, try making half the payment every two weeks. Since there are 52 weeks in 12 months, you’ll make 26 half-payments or 13 full payments instead of the usual 12 – one extra payment per year. Depending on your own individual situation, this can significantly cut up the life of your loan by 9 years.

3. Refinance to Lower Interest Rate

Consider refinancing your mortgage to a lower interest rate while keeping the term of the loan the same. The key is to not take any money out or extend the term when you refinance. Therefore, the new loan will offer a lower payment due to reduced interest costs. So when you continue making the same payments as before, all the extra will go to the payoff principal. The best thing about this strategy is that it doesn’t require any additional money to achieve your desired results.

4. Refinance to a Short Term

Rather than pay your mortgage over a 25-year amortization, try reducing the term to 12.5-years or make payments as if it were a 12.5-year loan amortization. The monthly payments will be higher, but the interest rate will usually be lower. Thus offsetting the total payment towards the loan. People tend to prefer this variation due to its increased flexibility and reduced cost, while others prefer the enforced discipline of the requirement for monthly payment.

5. Downsize to a Lower-Cost Home

Changing homes isn’t an option for many, but it must be mentioned here. You can consider moving to a lower-cost area or buying a smaller house in the same area. The smaller mortgage principal means you can be debt free faster using the same monthly payments you’ve been making.

Pay Off Mortgage Early – The Pros…

Now that you know the various strategies to pay off your mortgage early, let’s take a look at the benefits:

Let’s look at the benefits of paying off your mortgage early.

  1. Save Money. Paying off your mortgage early can save you a lot of money in interest costs.
  2. Peace of Mind. Freedom from debt and the security of having your own place to live is the best feeling ever.
  3. Reduced Cost of Living. For most people, mortgages constitute their biggest expense after taxes. Thus, without a mortgage payment, you can save more, work less or spend on other things you’ve always wanted but couldn’t afford before.
  4. Get Rid of Private Mortgage Insurance. When you accelerate paying down the principle, your home equity will reach a threshold where private mortgage insurance will no longer be required. Therefore, saving you money long before you have fully paid off your loan, allows you to accelerate even more your principal repayment while still making the same monthly payments.
  5. Retirement Planning. Owning a home as you near retirement, rather than putting your money in fluctuating investments.
  6. Guaranteed Return on Investment. It is quite comforting to put your money towards your own home and know with certainty what the return on investment will be.
  7. It’s Achievable. Many consider paying off their mortgage as a more tangible concrete financial goal, which can be quite motivating. It is big enough to be excited about and can make a significant difference in one’s life.

Related: The Most Affordable Mortgage Rates and Top Providers in Kenya

Pay Off Mortgage Early – The Cons…

Paying off your mortgage early may seem like a slam-dunk decision at first, but there are some downsides to it. Let’s review them.

  1. Lose the Tax Deductibles. The mortgage interest paid is generally dedicated to your tax return, ergo decreasing the cost. In Kenya, mortgage interest expenses are deductible up to Ksh 300,000 or Ksh 25,000 per month.
  2. Low Return on Investment. A home mortgage is likely the cheapest you will ever borrow – and the interest deductibles, further decrease the effective cost.
  3. Savings are in Cheap Kenyan Shilling. A key point to consider here. All the savings expect only come after the mortgage is paid off, meaning those savings must be discounted for inflation. Let’s say you repay your 25-year mortgage in 19 years. If you save Ksh 6M in a 19-year tenure, you will see that Ksh 6M is only worth Ksh 1.7M in today’s terms at a 6.75% inflation rate. In order words, you need to discount all savings by inflation because the payments you avoid will be in depreciated Kenyan Shillings.
  4. False Sense of Security. Even though you property is full paid for, you do not fully own it. You still have to pay land tax annually to the local government. In other words, you still have to pay some form or rent whether or not the bank is out of the picture. The truth is, true mortagage freedom is an illusion – your monthly payments are merely a question of degree and to whom – not whether it exists or not.
  5. Lost Diversification. Most investor portofios are denominated in domestic currency and thus carry the risk of inflationary government policies that depreciate an investments purchasing power over time. Therefore, a resdiential real estate mortahe is the only practical way for most people to short their domestic currency and hegde against inflationay economcic policies like the ones were are facing today.
  6. Interest Rate Below Expected Inflation. There are record low mortage interest rates as of this writing, its entirely possible that the interest rate on a fixed mortage could turn out to be lower than the inflation rate. If this is the case, then you are literally being paid to borrow money in real terms even though you are paying itnerest every month. Thus, you make more by owing than by owning. When you pay your mortgage early under these circumstances, you give away that financial advantage.

Read More: 9 Reasons Real Estate Investing Is The Way To Go

Final Thoughts

The decision to payoff your mortgage maybe intutively and logically right in the moment. There is a lot that needs to be considered as there are moments when that intuition and finance disagree. The truth is the decision to pay off your mortgage is quite complex. There is some to be gained and some to be lost. Therefore, like everything in life as you employ any of these strategies, try to find some balance of those gains and losses.

Image credits: Top by Tima Miroshnichenko via Pexels.

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Irene Makanga
Irene has an MBA in Finance and is an avid businesswoman, passionate about financial literacy.


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