Login
Password

Forgot your password?

Pay off mortgage early or not : things to consider

By Edited Aug 3, 2015 1 1

On average, homeowners will pay nearly twice the cost of their homes in mortgage interest payments. But you can save on your mortgage by making early payments.

Pay off your mortgage early

The above statement assumes that that you paid a nine percent interest on a thirty-year mortgage, with a twenty percent down payment. Those are fairly reasonable terms. So, to put real numbers into the equation, if the value of your home is $150,000, you have a mortgage of $120,000 (eighty percent of its value), which means that over thirty years, you will pay $227,000 in interest alone, over and above the $120,000 mortgage! That's twice the original value of your home!

So, how to pay off your mortgage early? You can do so by making extra mortgage payments on a consistent basis. To pay your mortgage early sounds harder than it really is. You may be thinking that you find it hard enough to make ends meet as it is, but we are not talking big sums of extra mortgage payments here. To give some concrete numbers, on the above example, if you were to pay just an additional $100 dollars in monthly mortgage payments, you would save more than $82,000 on your mortgage, and pay off your mortgage in full almost 10 years earlier!

The rationale behind this is that, the extra $100 that you paid in your first month would have cost roughly about $270 as interest over 30 years if it had been left unpaid. The next month's $100 extra payment will save you $268 in interest, and so on. The more extra payments you make, the more you save on interest, thus eliminating more and more of your final mortgage payments and allowing you to pay off your mortgage early in full.

Now, maybe you are saddled in debt and cannot afford to make extra $100 mortgage payments consistently. No matter. Pay what you can. It could be $50 or even ten dollars a month. $25 extra a month in the above example will allow you to pay off your mortgage three years early, and save you about $30,000. Paying $10 extra on a monthly basis will save you over $13,000 and allow you to pay your mortgage off early by over a year.

Another thing is that even if you cannot consistently afford to pay as much as an extra $100 a month, you might be able to pay that much at least in some months, and maybe even more than that some other months. So, even if you pay only $10 extra for your mortgage payments sometimes, on the whole you will likely do much better than the lowest payment scenario described in the previous paragraph.

A caveat in paying off your mortgage early

Paying off your mortgage early might work as a money saving strategy only work if there isn't a prepayment penalty on your mortgage contract. If there is such a penalty, you may get charged by the mortgage company to make early payments. They might also only apply a portion of your early mortgage payment to reduce the principal, pocketing the rest as service charges. Even so, it might make sense for you to make early payments, but you will need to use a mortgage calculator to figure that out.

Advertisement

Comments

Oct 4, 2010 6:25am
J-786
This is great info. I didn'i imagine that even the smallest additional payments on your mortgage could have such an impact ...... Great article.
Add a new comment - No HTML
You must be logged in and verified to post a comment. Please log in or sign up to comment.

Explore InfoBarrel

Auto Business & Money Entertainment Environment Health History Home & Garden InfoBarrel University Lifestyle Sports Technology Travel & Places
© Copyright 2008 - 2016 by Hinzie Media Inc. Terms of Service Privacy Policy XML Sitemap

Follow IB Home & Garden