What's the 10/15 rule and does it really help you pay off your 30-year mortgage in half the time?

The promise of the 10/15 rule

For younger homebuyers, the idea of becoming debt-free earlier in life is appealing. The 10/15 rule offers the potential to be mortgage-free well before retirement, freeing up funds for other investments and goals.

The 10/15 rule works similarly regardless of the actual payment required by your lender. However, the timeline can be affected by the mortgage rate.

If you buy a $300,000 home with a 20% down payment and acquire a $240,000 mortgage with a 30-year term and 7% interest rate, you would be scheduled to make monthly payments of $1,597 for the length of the loan. By applying the 10/15 rule, your average payment each month would amount to $2,290 — an extra $690 — but your mortgage would be paid off in just over 13-and-a-half years and you’d save over $200,000 in interest.

Now, let’s say you get the same mortgage but at a 4% rate. On a 30-year term, you’d normally pay $1,146 per month, but with the 10/15 rule that amount would average $1,643 monthly across 16 years and nine months, saving you $83,000 in the process.

By making these extra payments toward the principal, you can shave a significant amount off the loan term and the amount of savings would be substantial, since less interest would accrue on the remaining balance. Before rushing to make additional payments, be sure your mortgage contract allows you to contribute extra toward the principal and that you’ve selected this option upon payment.

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Challenges of the 10/15 rule

While the 10/15 rule can help you pay off your mortgage early, it requires a substantial financial commitment. Dedicating an extra 10% of one’s monthly mortgage payment each week might be difficult for buyers already stretched thin with other expenses, especially when inflation is only beginning to come under control.

In addition to mortgage payments, many homeowners are dealing with other financial responsibilities, such as student loans and child care. Committing to regular extra principal payments could be a tall order for many homeowners.

Budgeting for this additional expense requires discipline and the ability to cut back on discretionary spending. For those who can manage it, the long-term rewards are huge. However, the 10/15 rule may be unrealistic for many homeowners without a significant income boost or cutting down on other major expenses.

Alternatives to the rule

If the 10/15 rule feels too ambitious, alternatives exist to help pay down your mortgage faster. Among them:

Extra payment every quarter: This concept is similar to the 10/15 rule but slightly less taxing. By making an extra mortgage payment against the principal once every three months, using the example above at a 7% rate, you could pay off the loan in about 15 years.

Accelerated biweekly payments: Twenty-six half-monthly payments amount to an extra full monthly payment each year. This simple change can reduce a 30-year mortgage by several years and save you thousands in interest over the life of the loan. It’s a popular option as it aligns with many workers’ payment schedules.

Making extra lump-sum payments: An occasional extra lump-sum payment — from work bonuses, tax refunds or other windfalls — can accelerate your mortgage repayment and reduce interest costs.

Refinancing to a shorter term: Refinancing your 30-year mortgage to a 15-year mortgage will require a higher monthly payment. But if you can manage the increase, refinancing can significantly reduce interest costs and help you build home equity more quickly.