Should I Make Extra Payments On My Mortgage?

Wouldn’t it be a great feeling to own your home completely sooner rather than later? A typical mortgage can last 30 years, so here are some factors to consider if you’d like to pay your mortgage off faster.

How to pay off your mortgage early

Consider two strategies to pay your mortgage faster:

1. Make extra payments

You’re paying interest on the outstanding balance of your mortgage, so paying extra will reduce that balance and the interest you’ll have to pay.

How you make those extra payments is up to you. You can pay extra every month, every other month, or every year — whatever fits your budget. These extra payments can really save you a lot in interest expenses over the course of your mortgage.

Homeowner tip

If you want to prepay on your current loan, make sure to tell your lender that you want your extra payments to go to the principal, not the interest, on your loan. Paying interest in advance won’t help much because if the principal remains the same, interest will continue to accrue at the same rate as it did before.

2. Refinance for a shorter loan term

Refinancing may help you get better terms on your current mortgage, reducing interest and making monthly payments more manageable.

Learn more about refinance options

Don’t forget to maintain your savings

Most financial advisors recommend that you first prioritize an emergency rainy-day fund of six months of expenses. For example, if your family needs $5,000 per month, then a rainy-day fund of $30,000 would give you a six-month cushion in case of sudden unemployment, serious illness, or other financial hardship.

Consider potential penalties

Although it’s not too common, some lenders charge a prepayment penalty if you pay off your mortgage within the first few years. This is calculated either as a percentage of your loan or as a certain number of monthly interest payments. If you’re paying off your home loan well in advance, those fees can add up quickly. For example, a 3% prepayment penalty on a $250,000 mortgage would cost you $7,500. Ask your mortgage lender if your loan includes one of these penalties before paying off your mortgage.

Homeowner tip

As with any major financial decision, it’s important to consider consulting a professional to understand the short- and long-term impacts. You can reach out to your mortgage lender to understand how paying your mortgage early could impact you.