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Pay Off Mortgage Early: Should You Do It?

Sarah Li Cain4-minute read
June 02, 2022

Homeowners who can afford to pay off their mortgage early have different ways to do so. Whatever your reasons are, paying off such a large loan can feel freeing, and the money allocated to your payments can now go toward other goals.

While it seems impossible, it isn’t — it just takes some focused financial planning.

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Get approved with Rocket Mortgage® and do it all online. You can get a real, customizable mortgage solution based on your unique financial situation.

Can You Pay Off Your Mortgage Early?

The most important part of paying off your mortgage early is determining whether you can. While being mortgage-free is a worthy goal, it’s not worth it if you’re going to stretch yourself too thin financially.

You want to take a look at your current budget and see if it’s even possible to add an additional payment or two toward your loan. Even if you can, some lenders may charge a prepayment penalty, which will cost you extra to pay off your mortgage early.  This amount is to make up for the “lost” interest your lender expects to receive throughout the life of your loan. Rocket Mortgage®does not charge prepayment penalties.

It’s up to you to determine whether it’s worth it to pay extra to be debt-free sooner.

Should You Pay Off Your Mortgage Early?

Paying your mortgage off early is a good idea for most people but it’s not for everyone. Even if you can afford it, it might be a better idea to use the cash towards other goals.

For instance, if you have multiple high-interest or credit card loans, it might be smarter to pay those off — doing so can save you lots of money on interest charges.

Plus, if you find that you’re not saving enough for retirement or other goals like an emergency savings fund, it may be better to do that first before paying off your mortgage early.

However, if you can afford to save towards other financial goals in addition to paying off your mortgage early, then it might be worth doing so.

How To Pay Off Your Mortgage Early: 5 Ways

You can pay in many different ways, depending on what will work best for your lifestyle.

1. Make A Bigger Down Payment

If you’re purchasing a new home, making a bigger down payment makes monthly mortgage payments smaller and leaves you owing less from the very beginning. You can put 20% or as much as you can afford. Keep in mind you’ll need to account for closing fees and any related costs when moving in addition to budgeting for the down payment.

2. Create A Budget And Reduce Spending

When it comes to making extra payments toward your mortgage, you want to make sure to create a well-thought-out budget and stick to it. It could mean reducing any unnecessary spending and constantly reviewing the budget to make sure you’re on the right track.

While scrimping and saving to put as much toward your mortgage as possible could be a good idea for some, it can be risky in certain situations. If you don’t have a solid emergency fund or substantial savings, pouring all your extra money into your mortgage could lead to other financial hardships. Make sure you have the savings to cover unexpected expenses before committing all of your funds to pay down your mortgage.

3. Make Larger Payments

Making larger monthly payments on a home loan enables you to pay it off earlier. Consider making extra mortgage payments when your financial situation allows for it.

If you can make extra payments, ensure that the funds are being applied to your principal. You’ll most likely need to specify where you want the extra payments to be allocated. Otherwise, your lender might assume that you are prepaying the interest for next month.

Over time, these extra payments to your principal can help you to chip away at your mortgage balance. With that, you may be able to shave years off your loan and save thousands in interest.

4. Make Biweekly Payments

Making biweekly payments versus one monthly mortgage payment can help you pay off your mortgage faster, because you’ll end up paying one extra month’s worth of payments each year. Doing so can help you save thousands of dollars in interest and take years off your mortgage.

Plus, it can help you to reduce the lifetime of your loan without putting a large strain on your budget.

5. Refinance Your Mortgage

Refinancing a mortgage can change your loan terms (such as your interest rate) and allow you to pay more toward your principal balance. What you’re doing is replacing your current mortgage with a new one. If your current mortgage has a high interest rate and you can qualify for a lower rate, this tactic can work and help you save thousands over the course of your loan. You might even choose to refinance into a 15-year mortgage instead of a 30-year mortgage to limit the lifetime of your loan to help pay it off faster.

If you refinance to a lower interest rate with the same repayment term as you currently have, consider taking the amount you saved and applying it toward the principal, helping you speed up your debt-free status faster. 

What Are The Benefits Of Paying Off Your Mortgage Early?

There are many advantages to paying off a mortgage early — reasons include reducing debt, increasing cash flow and having complete ownership of your home.

Complete Ownership

One of the biggest benefits of paying off a mortgage early is having complete ownership of your home. You’re no longer tied to debt payments or have to worry about what happens if you miss payments. Sure, you’ll still have to budget for maintenance, repairs, insurance and property taxes, but the financial responsibility is most likely much less than if you were to tack mortgage payments onto your housing budget.

Reduce Debt And Interest Payments

The quicker you pay off your mortgage, the quicker you will reduce your overall debt and interest payments.Doing so can save thousands of dollars in interest payments. Let’s say you took out a 30-year mortgage for $150,000 with a 4% interest rate, that would lead to about $107,805 in interest payments. If you were able to put an extra $100 toward the loan’s principal each month, you could save nearly $25,048 in interest payments. Plus, you’d pay off the mortgage 6 years early!

Increase Cash Flow

Once you no longer have to make a monthly mortgage payment, you can free up more money in your bank account. Having this extra cash can help you achieve different financial goals, such as paying down loans, saving toward your other goals, setting aside money for your child’s education and even putting more toward your investment accounts.

Apply Online with Rocket Mortgage®

Get approved with Rocket Mortgage® and do it all online. You can get a real, customizable mortgage solution based on your unique financial situation.

The Bottom Line: How And Whether To Pay Off Your Mortgage Early Is A Personal Decision

There are multiple ways to go about paying off your mortgage early if, in fact, it’s the right move for you. While tactics such as refinancing your mortgage and making bimonthly payments can be helpful, it’s important to do your own research and choose the options that are best for you and your financial situation. For more home buying resources, check out Rocket HQSM for information and tips.

Sarah Li Cain

Sarah Li Cain is a freelance personal finance, credit and real estate writer who works with Fintech startups and Fortune 500 financial services companies to educate consumers through her writing. She’s also a candidate for the Accredited Financial Counselor designation and the host of Beyond The Dollar, where she and her guests have deep and honest conversations on how money affects our well-being.