Should You Pay Off Your Mortgage Early?

Paying off your mortgage early can help save thousands of dollars in interest. But before you start throwing a lot of money in that direction, you’ll need to consider a few factors to determine whether it’s a smart option.

In this article, we’ll share some of the pros and cons of paying off your mortgage early and give you a few tips you can use to reduce the interest you’ll pay on your loan.

Paying Off Your Mortgage Early

Every time you make a mortgage payment, it’s split between your principal and interest. Most of your payment goes toward interest during the first few years of your loan. You owe less in interest as you pay down your principal, which is the amount of money you originally borrowed. At the end of your loan, a much larger percentage of your payment goes toward principal.

You can apply extra payments directly to the principal balance of your mortgage. Making additional principal payments reduces the amount of money you’ll pay interest on – before it can accrue. This can knock years off your mortgage term and save you thousands of dollars.

Let’s say you borrow $150,000 to buy a home at 6% interest with a 30-year term. By the time you pay off your loan, you’ll have paid a whopping $173,757.28 in interest. This is in addition to the $150,000 you initially borrowed.

Now, let’s say that you pay an extra $100 every month toward a loan with the exact same term, principal and interest rate. At the end of the term, you’ll have paid $128,170.57 total in interest. That’s $45,586.71 less than you would have paid if you didn’t make any extra payments. You’ll also pay your loan off 81 months earlier than you would if you only paid your premium each month.