5 Best Ways To Pay Off a Mortgage On an Average Salary
Written by
Ashley Donohoe
Edited by
Cory Dudak
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Paying off your mortgage can free you from large monthly housing payments, build equity fast and save many thousands in interest charges. But if you’re living off the average U.S. salary, which the U.S. Bureau of Labor Statistics reported as $65,470 in May 2023, simply making some big lump-sum payments is probably not practical unless you already have substantial savings.
Here are the five best ways to pay off your mortgage early on an average income.
1. Consistently Pay More Each Month
Even if you have a tight budget, you likely already have room or can cut a few expenses to pay a little more each month toward your mortgage principal. While an amount like $10 or $100 can sound insignificant compared to your payment amount, it can make a big dent in your balance when you’re consistent. Even rounding up your current payment can help.
Say you took out a $300,000 30-year fixed-rate mortgage at 4.7% in June 2018. If you started paying just $100 per month extra toward your principal in September 2024, you could save nearly $21,000 over your loan term, per this American Financing calculator. Plus, you would cut your payoff time by nearly 2.5 years.
2. Make Extra Lump-Sum Payments
It can seem challenging to budget for even one extra mortgage payment on an average income, but this is one of the best ways to pay your mortgage off early and reduce interest. This is especially true when you’re in the early years when the interest takes up a big portion of each payment. Just make sure the extra money goes toward the principal.
You can expect a shorter payoff time and substantial interest savings, though the ultimate financial impact will depend on various details related to your loan. Consider experimenting with an extra payments calculator with different payment frequencies and thinking about other important financial goals to decide on the right strategy.
3. Take Advantage of Any Extra Money
You can always take steps such as cutting everyday expenses, renting out some rooms or taking a second job to dedicate more funds toward paying off your mortgage.
However, you likely receive extra funds throughout the year — such as gifts, bonuses and income tax refund checks — that can also be put to use. The same can apply to less frequent windfalls such as inheritances, property sales and insurance payouts. Consider putting the whole amount toward your home loan’s principal.
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4. Carefully Research Refinancing Options
Because of high mortgage rates right now, you would need to cautiously consider any refinancing decision since you might end up with a worse rate than you have. But according to Ramsey Solutions, it could be a wise option if you can go with a 15-year term, get a lower rate or escape an adjustable-rate mortgage, which can be costly and unpredictable.
Refinancing does come with downsides, including closing costs, a time-consuming application process and the fact that it could ultimately not save you money. If it doesn’t seem feasible, a good alternative could be aiming to pay off your current mortgage several years sooner using any of the strategies discussed above.
5. Think About Downsizing
If you have built up significant equity and feel ready to move to a smaller, less expensive place, you might want to think about whether downsizing makes sense. You could sell your current house to pay off the mortgage and possibly cover the new place with the remaining proceeds — or at least take out a smaller mortgage than your current one.
However, this is the most extreme option since it would require the effort and costs of relocating and it could leave you with a new mortgage to pay off. The other strategies are probably more likely to fit your needs unless you are entering retirement and plan to downsize anyway.
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