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- The pros of paying off your mortgage early
- The cons of paying off your mortgage early
- Questions to ask yourself before paying off your mortgage early
- Mortgage calculator
Our experts answer readers' home-buying questions and write unbiased product reviews (here's how we assess mortgages). In some cases, we receive a commission from our partners; however, our opinions are our own.
- Paying off your mortgage early is a good way to free up monthly cashflow and pay less in interest.
- But you'll lose your mortgage interest tax deduction, and you'd probably earn more by investing instead.
- Before making your decision, consider how you would use the extra money each month.
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Paying off your mortgage early can be a wise financial move. You'll have more cash to play with each month once you're no longer making payments, and you'll save money in interest.
Making extra mortgage payments isn't for everyone, though. You may be better off focusing on other debtor investing the money instead. Here are the pros and cons to paying off your mortgage early.
The pros of paying off your mortgage early
The cons of paying off your mortgage early
Questions to ask yourself before paying off your mortgage early
How would you use the money you'd be saving on monthly payments?
If you're paying off your mortgage early so you can have more monthly cashflow, you should have an idea of how you'll use that extra money. If you want to cut out your $900 mortgage payment and invest $900 per month in its place, that could be a good use of the money.
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Ultimately, it's up to you how to spend the extra cash. But if you can't think of what you want to do with the money, paying off your mortgage early might not be the best financial move. Remember that even if you pay off your mortgage, you'll still have regular costs related to your home, like maintenance and homeowners insurance.
How does paying off your mortgage early fit into your retirement plan?
The answer to this question will be different for everyone.
If you know you want to stay in this house during retirement, paying it off now so you don't have to make monthly payments in retirement might be the right move.
But if you're, say, 10 years away from retirement and haven't started investing yet, investing will be a better use of the money than paying off the mortgage early.
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Do you have other debts to pay off?
The general rule of thumb is that you should focus on paying off higher-interest debt before lower-interest debt. You may be paying a higher rate on a credit card or private student loan than on your mortgage, so you'd benefit more by paying those off early.
Don't pay so much toward your higher-interest debt that you risk defaulting on mortgage payments, though. Yes, credit cards can be expensive, and the issuer may take legal action if you default on card payments. But defaulting on mortgage payments can be an even bigger risk, because you could lose your home.
What other options do you have?
If you're looking to ultimately free up some room in your monthly budget or save money on interest, making extra payments on your mortgage isn't your only option.
Refinancing can help you lower your monthly payments, either by lowering your rate or by lengthening your loan term so you have more time to pay off your balance.
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If paying off your loan early is the goal, refinancing into a shorter term, like a 15-year mortgage refinance, will help you achieve that while saving money on interest.
If you have a large amount of money you want to put toward your mortgage, you might want to consider a lump sum payment or mortgage recast.
With a lump sum payment, you make one large payment toward your principal so your mortgage will be paid off early. But with a recast, you pay that same lump sum and ask your lender calculate what your monthly payment should be based on your new, lower principal amount. Then you'll have the same term length but a lower monthly payment going forward.
There's no clear right or wrong answer about whether or not you should pay off your mortgage early. It depends on your situation and your personal goals.
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Mortgage calculator
Use our free mortgage calculator to see how paying off your mortgage early could affect your finances. Plug in your numbers, then click on "More details" for information about paying extra each month. You can also use a formula to figure out your monthly principal payment, though using a mortgage calculator is generally easier.
Mortgage Calculator
%
%
$1,161 Your estimated monthly payment
More details
Total paid
$418,177
Principal paid
$275,520
Interest paid
$42,657
Ways you can save:
- Paying a 25% higher down payment would save you $8,916.08 on interest charges
- Lowering the interest rate by 1% would save you $51,562.03
- Paying an additional $500 each month would reduce the loan length by 146 months
By putting a few hundred dollars toward your mortgage per month, you could own your home in full years sooner. But even if you don't have that much extra money each month, you may decide to put just $50 or $100 toward your payments.
Laura Grace Tarpley, CEPF
Personal Finance Reviews Editor
Laura Grace Tarpley (she/her) is a senior editor at Personal Finance Insider. She oversees coverage about mortgage rates, refinance rates, lenders, bank accounts, and borrowing and savings tips for Personal Finance Insider. She was a writer and editor for Business Insider's "The Road to Home" series, which won a Silver award from the National Associate of Real Estate Editors. She is also a Certified Educator in Personal Finance (CEPF).She has written about personal finance for over seven years. Before joining the Business Insider team, she was a freelance finance writer for companies like SoFi and The Penny Hoarder, as well as an editor at FluentU. You can reach Laura Grace at ltarpley@businessinsider.com.Learn more about how Personal Finance Insider chooses, rates, and covers financial products and services »
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As a seasoned financial expert with a comprehensive understanding of personal finance, mortgages, and investment strategies, I am well-equipped to dissect the article titled "The Pros and Cons of Paying Off Your Mortgage Early" by Laura Grace Tarpley. My expertise spans various financial concepts, including mortgages, loans, credit scores, insurance, banking, investments, taxes, and retirement planning.
In this specific article, Laura Grace Tarpley explores the advantages and disadvantages of paying off a mortgage ahead of schedule. Here is a breakdown of the key concepts discussed:
Mortgage Basics:
-
Pros of Paying Off Your Mortgage Early:
- Frees up monthly cash flow.
- Reduces the total interest paid over the life of the loan.
-
Cons of Paying Off Your Mortgage Early:
- Loss of mortgage interest tax deduction.
- Potential opportunity cost – investing the money may yield higher returns.
Considerations Before Paying Off Your Mortgage Early:
- Questions to Ask Yourself:
- How will you use the extra money saved each month?
- How does paying off your mortgage align with your retirement plan?
- Do you have other high-interest debts to address first?
- What alternative options, such as refinancing, lump sum payments, or recasting, are available?
Mortgage Calculator:
- The article provides a mortgage calculator to help readers estimate the impact of paying off their mortgage early on their finances. Users can input various parameters, such as home price, down payment, loan length, and interest rate, to see the potential outcomes.
Expert Insights:
- The author emphasizes that the decision to pay off a mortgage early depends on individual circ*mstances and goals.
- Considerations include how one plans to use the extra cash, the alignment with retirement goals, and the presence of other debts with higher interest rates.
- Alternative options like refinancing or making lump sum payments are presented as viable alternatives to early mortgage payoff.
Author's Credentials:
- The article is authored by Laura Grace Tarpley, identified as a Certified Educator in Personal Finance (CEPF).
- Laura Grace Tarpley is the Personal Finance Reviews Editor at Business Insider, specializing in mortgage rates, refinance rates, lenders, and various financial topics.
In conclusion, the article provides valuable insights into the complex decision of paying off a mortgage early, offering a balanced view of the pros and cons while guiding readers through relevant considerations. Laura Grace Tarpley's expertise in personal finance adds credibility to the information presented in the article.
