Pay your 30-year mortgage off early and live a debt free life before you're too old to enjoy it!

Facing down a 30-year mortgage can be psychologically and financially daunting. It's depressing to think that most people will be in their 50's and 60's before they finally pay off their mortgages.

Know what else is depressing? The fact that the interest on a 30-year loan is astronomically more than the interest on a 15-year loan. On a $200,000 mortgage, you'll pay more than $100,000 extra for a 30-year mortgage vs. a 15-year mortgage. That's more than half of your total loan amount in extra interest payments!

One solution to solving these psychological and financial issues is to pay down your mortgage early thereby reducing the amount of time that you'll be stuck with the monthly payments. It will end up costing you more each month, which may create even more psychological stress, but at least the end will be in sight.

Tax deductions are another benefit of paying your mortgage off early. The majority of your early payments go towards the interest on the loan, which is tax deductible. Pay more towards the mortgage in those early years and you might break even on taxes.

Here are a few popular strategies that homeowners use for paying down their mortgage early:

1) Refinancing: Refinance your mortgage for a shorter term at a lower rate. You will likely be paying more per month-how else would it be possible to pay off the same loan amount in half the time?-but the term will be much shorter. The one downside to this approach is that you will have to pay the closing costs, which means that it may take a few months to break even.

2) Large annual lump sum payments: Use your tax return, bonus, inheritance, or other big check to make one annual lump sum payment per year. If any of these amounts are unexpected yearly windfalls to you anyway, then you're not going to miss them by paying off your mortgage with them. You're also not going to waste that money on an impulse buy.

3) Paying a little bit extra every month: Try to pay a set amount of extra cash every month on your mortgage. It can be something like 15% or perhaps just $100. One trick is to pay with a separate check and notify your lender that the payment is only to be used for the reduction of principal in order to build equity more quickly. The extra check is for tax purposes as principal payments are not deductible.

4) Bi-monthly mortgage payments: Work it out with your lender to pay your mortgage bi-weekly instead of monthly. The way that the weeks work out, you'll end up getting in an extra mortgage payment per year.

5) Paying whatever whenever: If your finances aren't settled enough to pay down extra money regularly, just pay what you can when you have it. No matter how small, it all helps to lessen the length of your mortgage.

Some financial experts caution that there are times when it doesn't make sense to pay off your loan early. This is mainly when you have debts that charge more interest than your mortgage rate.

Whatever your choice, there is a strategy that will likely work for you. Anything that you can pay ahead of time will result in a shorter mortgage loan period-which will help you to achieve the dream of a debt free life just a little bit earlier.

Published on April 23, 2011