You don't need a mortgage expert or special advisor to help you pay back your mortgage early.

A mortgage isn't a quarter-mile drag race; it's more like the Indy 500. Covering 500 miles of debt repayment may seem like an impossible task, but with a little strategy, you can cross the finish line sooner than you think.

You don't have to write a six-figure check to repay your mortgage early. To demonstrate, let's look at quick ways to pay down a 30-year mortgage that was funded five years ago in the amount of $300,000. The interest rate on this hypothetical loan is 6.25 percent, the payment is $1,847.15 a month, and the remaining balance is about $280,000.

Turn household savings into mortgage paydown

First, find ways to cut back on your household spending. This might mean clipping coupons, changing your cell phone service or cable TV subscription, or canceling the gym membership that you don't use. Total up your monthly savings, and add that amount to your mortgage payment. Paying an extra $100 per month on the hypothetical mortgage will shave 34 payments off the life of the loan and reduce the total interest cost by $36,300. An extra $150 per month shortens the loan by four full years and saves more than $50,000 in interest.

Set up bi-weekly mortgage payment plan

You could set up a bi-weekly payment program with your mortgage servicer, but it will cost you. A better idea is to establish automatic transfers from your checking account to your savings account. Schedule to have half of your mortgage payment transferred into your savings account every two weeks. Then, use that money to pay down the principal to your lender every month. You'll end up making 13 payments every year instead of 12. The extra annual payment shortens the hypothetical mortgage by almost four years, and reduces the total interest cost by about $50,000.

Give half your bonus to your lender

If you receive an annual bonus from work, consider sending half of it to your lender as an extra principal payment. Depending on the size of your bonus, the impact could be significant. With the hypothetical mortgage, an extra annual payment of $10,000 saves up to $155,000 in interest and shortens the mortgage by more than 12 years. Even an extra payment of $2,000 a year makes a difference, cutting more than four years off the mortgage and reducing costs by more than $55,000.

Round up

You always have the option of rounding up. In the above example, you could round the payment up to $1,850 or even $1,900. An extra $2.85 every month will cut one payment out of the loan and lower total interest costs by more than $1,000. Pay the extra $52.85 and the mortgage will be paid off 19 months earlier and cost about $20,000 less in interest.

Ultimately, it only takes small amounts of extra cash to win the mortgage payoff race.

Published on August 12, 2008