Should You Pay Off Your Mortgage Early?

I only know of one person who has ever saved up all the cash needed to purchase a home. Not even my grandparents could do it. If you want to own a home, a mortgage is just about the only way the average person can do it. When you get a mortgage you are agreeing to pay a (usually) set amount of money (a large amount!) every month for thirty years. It can be overwhelming to commit to something for the next thirty years of your life, but once you start making those payments, it is easy to just accept that that is the way it is and keep making those payments for the next few decades. Except there is the option of paying it off early.

In today's instant gratification society it can be hard to find extra money in your budget each month when there are so many other tempting things calling for your money. Even if you can find some extra to send to the mortgage company, it can seem like only a small drop in the bucket of the total mortgage. One has to wonder if it is worth it to send extra money in. Well, I believe it is. If you can scrape together enough extra each month to equal one extra payment a year you can pay off your mortgage five years early while saving yourself tens of thousands of dollars in interest. Let's look at an example.

According to this mortgage calculator if you take out a 30 year fixed rate loan of $200,000 at 6% interest you will have a payment of $1199.10 every month for thirty years (starting in January of 2010). At the end of the term in December of 2039 you will have paid a total of $431,676.38 with $231,676.38 of that being interest only. You read that right, you will pay more in interest than what the original loan was for. If you were to make one extra payment each year towards the principal only you would pay off your loan in June of 2034 paying just $181,913.68 in interest for a total of $381,913.68. This is a savings of $49,762.70.

If you can get enough money to pay even more each month then you will pay it off even sooner. But why should you pay off your mortgage early? There are many good reasons. Do you like owing people money? I don't, therefore we are trying to get out of debt as quickly as possible. I don't like getting a paycheck each month that is already spoken for by other people. Wouldn't it be nice to have more control over your money? Imagine all the things you could do if YOU were able to keep that $1200 a month for yourself rather than sending it to the mortgage company.

You could easily save for retirement, pay for your children's college, donate to charities, go on an extravagant vacation, purchase a new car with cash and much, much more if you don't have a mortgage payment. If you didn't have a mortgage payment you wouldn't be as tied down to your job. If you want to change careers mid-stream or switch to a part-time work schedule not having a mortgage payment would make those things much more possible.

Right now my husband and I are in our upper thirties. We have 29 years left on our mortgage. That means that we will be past retirement age by the time we pay it off if we don't pay extra. That doesn't sound like fun to me. I would rather sacrifice a little bit now and enjoy myself a lot more later. Not having a mortgage payment is a huge form of financial security - one that I really want to have as soon as possible. It is all about short term sacrifice for long term gain.

More by this Author


Comments 18 comments

DiamondRN profile image

DiamondRN 6 years ago from Charlotte, NC USA

I am retiring soon, Jennifer. We took this mortgage out in early 1999. By making one or two extra payments every year in the beginning, we knocked off 18 years of payments in about 10 years. That's easily a savings of over $100,000. Now that our mortgage balance is down so much, we no longer see the big principal reduction per payment that we saw early on. We have decided to make regular payments for now. If God continues to continue blessing us, I will still making enough money from trading stocks to benefit from the tax breaks for the foreseeable future. We have enough equity, about 85 percent, that we would still be in a comfortable situation should just about everything go bad.


breakfastpop profile image

breakfastpop 6 years ago

Go for it or follow the advice of Diamond RN.


Hello, hello, profile image

Hello, hello, 6 years ago from London, UK

It certainly saves a lot of money if you can do it. Thank you for a well written hub.


Laura in Denver profile image

Laura in Denver 6 years ago from Aurora

It can save a great amount of money to pay off mortgage early. Therefore, when taking out a house loan, it's recommended you check there is no *penalty* to make extra payments when possible.

In Colorado, it's state law that there can be no home loans you cannot pay off earlier, but I don't know about other states.

One other comment: interest rates on 15 and 20 year loans, respectively, are *lower* than the 30 year loans, when you are *sure* you can pay the higher amounts regularly.


Shelly McRae profile image

Shelly McRae 6 years ago from Phoenix, Arizona

Depending on your mortgage terms, the remaining principle, and your income you might want to consider refinancing to a 15 year loan in a couple of years, after building a little equity. The payment wouldn't be that much different then. At your age, a 15 year loan, with your "extra payment plan" could get you out of debt a whole lot sooner.


Pamela N Red profile image

Pamela N Red 6 years ago from Oklahoma

I agree with Shelly. I'd never do a 30 year when a 15 is so much better. We not only got a 15 year loan but paid the next months interest each month paying it off early. I don't owe anything on my house now.


Sage Williams profile image

Sage Williams 6 years ago

Great hub, very informative, makes perfect sense. Will have to give it some more thought. Lots of good and informative comments as well.

Thanks to all

Sage


HealthyHanna profile image

HealthyHanna 6 years ago from Utah

We are retired. We have an excellent rate on our home loan and was advised to put money into a 401K instead of paying off the house. We now have enough to pay off the house in the The 401K, so the 401Kmakes the house payments. The theory is that the 401K makes more interest than we pay out on the home loan, so the theory is that we are actually making money with the interest on the 401K. It doesn't do much for the feeling of security, but as long as the economy holds out it is a good practice.

PS we do carry only a 15 year loan on the house.


Dim Flaxenwick profile image

Dim Flaxenwick 6 years ago from Great Britain

Excellent hub , although I know some people can't afford to do it that way., It surely is best to try. Who wants to retire with debt around their neck ?


NewHorizons profile image

NewHorizons 6 years ago from Gozo, Malta, EU.

Hi Jennifer, I totally agree with you and with all these comments that also see eye to eye with you. I had a small loan which I paid off in three years. This set my mind at rest. I did some sacrifices to pay it off as quickly as possible.

PS. Great Hubs. May I give you some advice. If you were to bundle them all in a professional Website you would make a lot of money, while doing what you like best.

J.Attard aka as NewHorizons : http://bit.ly/9FK3Ta


lctodd1947 profile image

lctodd1947 6 years ago from USA

Jennifer, You are right having a large house payment with minimal retirement income can be an issue for lots people. Another way is see if your lender will allow by-week payments. It is amazing how much help an extra $100 a month takes off of the principal. Some people do not plan on staying in their house but sooner or later they will have to plan for retirement a large house will not be acceptable to live comfortably. It happens a lot that young people forget they will get older and funds may not be the same. I worked in Mortgage for 30+ years and I have seen it all. If they paid their house off they could invest then in 401k...if they can do both that is great. Retirement funds are not paying a lot of interest now and most mortgage interest rates are higher than CD's etc.

I also wrote a hub about this..Good work Jennifer.


Epiphany99 profile image

Epiphany99 6 years ago from TN

Yes, I totally agree about paying your mortgage early. The borrower is slave to the lender. Daveramsey.com preaches no debt all the time he is good. 100% of forclosure happens because people have a mortgage:) lol. No debt for 2010, I wonder if Congress could live within there means like most people do? http://hubpages.com/@epiphany99


Mercenary 6 years ago

We dedicate a little extra money (about $150 dollars) more than what is required to pay off our home loan & found it to be well worth while, over the year we've calculated we've saved around $500 in interest.


Alex Monroe 6 years ago

Nice post. It is really up to the buyer themselves if they want to pay off their mortgage early or not. If the buyer can afford it then yes. But if not, the buyer shouldn't especially if the recession is hitting them. Ask your mortgage company for an advice that could really help you.


sarahpucci profile image

sarahpucci 6 years ago

I really don't think that there is a yes/no answer to this one. For some, a longer mortgage might work, while for others, it doesn't.


KoffeeKlatch Gals profile image

KoffeeKlatch Gals 6 years ago from Sunny Florida

We paid off our mortgage early and have been thankful that we did. It saved us a lot of money. In this economy where jobs and money are both scarce it has been a blessing not to have a mortgage payment hanging over our head. Well-writen article.


Franz Buhlmann profile image

Franz Buhlmann 5 years ago from Newport, Tennessee

Any time you can make a reduction in your principle you will save money on the overall cost of your loan. However it is best to make them as early as you can instead of waiting to save them up. For example if you make five payments of twenty dollars in will reduce you interest amount faster than if you wait and pay one hundred dollars when you have saved it up. Remember that even a small amount can equal a ton of savings in the long run, if you do it early enough!

Just a word of advice; never stop repaying your loan early! You never know what the future holds, who knows if an unexpected turn of events will leave you strapped for cash. Any sacrifice you make now will be earning you extra money. Just remember the old saying: ‘A penny saved is a penny earned!’


Martyv25 5 years ago

Great hub and great advice paying money off your mortgage every month is definatly worth your while.

    Sign in or sign up and post using a HubPages Network account.

    0 of 8192 characters used
    Post Comment

    No HTML is allowed in comments, but URLs will be hyperlinked. Comments are not for promoting your articles or other sites.


    Click to Rate This Article
    working