Mortgage Acceleration Plan
Automate extra principal payments and verify where every dollar lands
- Difficulty
- Easy
- Time to result
- ~ongoing to results
- Steps
- 5
- Confidence
- 98%
Bach's plan begins with the mortgage rate rather than a blanket instruction to repay. He argues that a very low-rate mortgage may not need urgent acceleration when cash can earn more elsewhere, while a 6%-8% mortgage makes repayment more compelling in his view. Next, model the effect of extra principal using the actual balance, rate, payment, and terms. He offers three implementation routes: make one extra payment each year, raise each monthly payment by about 10%, or split the normal monthly payment in half and pay every two weeks. Whichever route is chosen, automate it and confirm with the lender that the extra amount reduces principal. Actual savings and years removed depend on the loan, fees, prepayment rules, taxes, and the return available elsewhere.
Origin
David Bach outlined this plan on The Diary of a CEO in response to a question about using inherited cash to repay a mortgage or invest in the stock market.
Core principles
- 01Compare guaranteed debt savings with realistic alternatives
- 02Make extra payments systematic rather than occasional
- 03Direct additional money explicitly to principal
- 04Calculate the effect before committing cash
How to run it
- 1
Read the loan terms
Confirm the interest rate, remaining balance, payment, term, and any prepayment restrictions. Do not rely on the original mortgage paperwork if the rate has changed.
Pro tip Ask the lender how extra payments are processed.
Watch out Prepayment penalties or limits can change the result.
- 2
Compare the alternatives
Compare the effective benefit of repaying debt with an appropriate alternative for the cash. Bach distinguishes low-rate mortgages from loans charging roughly 6%-8% in his example.
Pro tip Use after-tax, risk-adjusted comparisons rather than headline returns.
Watch out Investment returns are uncertain; mortgage interest avoided is generally more predictable.
- 3
Model the extra payment
Calculate how one extra annual payment, a 10% monthly increase, or biweekly payments would affect the term and interest. Use the actual loan figures.
Pro tip Keep the model output showing both time saved and interest saved.
Watch out A generic claim about years saved may not match your mortgage.
- 4
Choose one schedule
Select the method that fits cash flow without weakening essential reserves. Avoid combining methods unless the budget clearly supports it.
Pro tip A monthly increase can be easier to absorb than a large year-end payment.
- 5
Automate and verify
Schedule the extra payments and instruct the lender to apply them to principal. Check the next statement to confirm the balance fell as expected.
Pro tip Recheck after any refinancing, servicing transfer, or payment change.
Watch out An extra payment may be treated as an advance payment unless principal allocation is specified.
In the wild
Bach gives a simple example: a homeowner with a $1,000 monthly mortgage changes the automated payment to $1,100 and tells the bank to apply the extra $100 to principal. The homeowner then checks the statement rather than assuming it was allocated correctly.
→ The mortgage balance receives a consistent extra principal reduction each month.
Common mistakes
Ignoring the mortgage rate
Bach's own answer changes depending on the rate. Compare before accelerating.
Assuming extra means principal
Verify how the lender applies additional money instead of assuming the balance fell.
Using every liquid dollar
Mortgage repayment can reduce accessible cash, so preserve an appropriate emergency reserve.
Is it for you?
Best for
It is best for homeowners with stable cash flow who want to reduce mortgage interest and term.
Not ideal for
It is not ideal when extra payments trigger penalties, drain emergency cash, or clearly underperform a suitable low-risk alternative after tax.
From the transcript
“What's the rate on your mortgage?”
“Make that payment automatic.”
“Make sure though that money's actually paying down the principal.”
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