Want to pay off your home loan quicker? Enter how many years you'd like to pay off your loan in, what your current outstanding balance is, and the loan's APR. Then enter the principal & interest (P&I) portion of your current monthly loan payment and we will tell you how much extra you need to add to each monthly payment to pay off your loan in the number of years you specified. We'll also compute your interest savings generated by paying off your loan faster. If you enter your current monthly loan payment with other fees included (such as property taxes, homeowners insurance & anything else you may have rolled into your monthly payments) we'll also calculate the new monthly payment inclusive of the other costs of homeownership.
Mortgage Payoff Goal Calculator
Current 30-YR Fixed Mortgage Rates
The following table highlights current mortgage rates. By default 30-year purchase loans are displayed. Clicking on the refinance button switches loans to refinance. Other loan adjustment options including price, down payment, home location, credit score, term & ARM options are available for selection in the filters area at the top of the table.
How to Quickly Pay Off Mortgage Debt
Having a mortgage is a debt many people might see as both a blessing and a curse. However, a mortgage is a reality most people will face at some point in their lives, so how do you make the most of what might often be considered a bad situation?
It is simple: you just pay-off early.
But is it really that simple?
If you are thinking of ways to reduce your debt and better manage your financial obligations, you are going to want to look at your mortgage and consider ways how you might be able to pay it off more quickly and efficiently. This article will help you to look at many issues surrounding it.
Pros and Cons
Before prepaying anything, check with your mortgage company to be sure there will be no penalties in doing so. It will vary by lender, but most will allow early payouts, sometimes for a leveraged fee.
As with any financial decision, there are going to be pros and cons to weigh regarding rethinking a mortgage, be it through refinancing or unique repayment strategies. Understanding a bit more about how things might affect you can sway your ultimate decision.
Some of the pros of paying off a mortgage early are self-evident:
- You’ll pay less, overall, and reduce your liabilities
- You can free money for other investments
- You pay less interest
However, it is not always so simple to deduce that paying a mortgage off early equals all better things for the decision-maker. True, you will pay less interest and as a result, less overall, but there may be benefits to holding onto your mortgage, including (but not limited to):
- You could get a tax break on interest paid
- You may have a lower APR than any currently offered
- Steady, unflexing payments despite changes in the economy (easier budgeting)
Some of the cons against prepaying include the fact you need to come up with more money to do it, and that a low interest rate (home loans are among the lowest) is hard to beat.
There is no black-and-white answer to whether it is a good idea to pay off early – there are going to be individual mitigating factors that will impact your decision. Personal circumstances, debt tolerance and risk management will all play roles as direction setters into your best move forward.
While there may be multiple ways an individual might approach this situation, the one thing experts tend to agree on is the idea that you should max-out all retirement accounts BEFORE you consider paying off a mortgage early. By increasing your retirement accounts, IRAs and CDs first, you are protecting your future rather than putting it at a greater financial risk.
The thinking is based on the idea that paying off a mortgage early is a strategy for the future but increasing retirement funds is a more concrete method of protecting that same future. One thing that will help you focus, is to understand how extra payments will affect your mortgage.
A simple strategy that is very effective in reducing a mortgage is to pay extra every month. You may have to specify to your lender how to apply your additional funds, but typically you can apply them in full to the principal. This means you will pay a normal monthly amount (interest plus principal) and then add an additional amount that reduces your principal and with it, the associated interest it carries.
For example, a $200,000 loan at 4% for 30 years has a monthly principal & interest payment of $954.83. If it originated on 12/1/2018, the payoff date is December 2038, and you will pay $143,739.43 in cumulative interest.
- If you were to add $100.84 to each monthly payment, you would save $26,125.83 in interest and you’d pay off the loan in December 2033 – saving you 5 years of payments.
- If you were to add $202.11 to each monthly payment, you would save $45,245.30 in interest and pay off the loan in June 2030, shaving off 8 and a half years of payments.
While the numbers support the idea of paying a little more every month, having that extra money every month may not be so easy to do. Instead, many folks will use windfalls or annual events like tax returns, work bonuses or other lump sums as their way to get ahead of their mortgage.
Using the same example, let’s see what a lump sum might do:
- A $2,500 lump sum one-time payment drops the interest by $5,652.49, and cuts 8 months off the mortgage length.
- A $5,000 lump sum one-time payment drops the interest by $11,080.42 and cuts 1 ⅓ years off the mortgage length.
- A $10,000 lump sum one-time payment drops the interest by $21,307.79 and cuts 2 ⅔ years off the mortgage length.
- An annual payment of $2,000 saves $39,589.26 in interest and cuts 7 ⅓ years off the mortgage length.
For the sake of simplicity the above lump sum payments were done at the beginning of the loan. If they are done later into the loan period then they will not have quite as big of an impact on savings since interest will have accumulated against a larger remaining loan balance until the lump sum payment was done.
If you dedicated a tax return or work bonus to your mortgage every year, you can certainly see the benefits. If you had a larger amount, like an inheritance, you can see the impact a large lump sum has. Additionally, every time you are making an extra payment, you are increasing your own equity earned in your home.
Because prepaying a mortgage is so common, there are some simple ways people might approach it. In addition to the strategies already mentioned, you should consider:
- Bi-weekly payments: By splitting your monthly payments in half and pay that amount bi-weekly, you will end up paying 26 times – which gives you the equivalent of an additional monthly payment every year. Many lenders will offer this, but some will not – and you do want to use caution if they suggest outsourcing to another payment processor. Third-party processors may have fees, contracts and fine print that can get sticky. If bi-weekly payments are not offered, you can self-serve a solution, using a dedicated savings account that holds your payments until you make them.
- One additional payment per year: Like the bi-weekly payments, adding one additional payment annually will significantly reduce your interest paid, and the length of the mortgage. One smart strategy is to divide a monthly payment by 12, then save that amount or make an additional, principal-only payment with it.
- Rounding-up: Some mortgage holders will round-up their monthly payment amounts to work down the principal. For example, if your payment was $1020.00 a month, you might increase that payment to $1100 monthly to help knock down the length and amounts of your obligations.
Should I Refinance?
Another common option to pay off a mortgage more quickly, is to refinance the mortgage. This naturally assumes that you will be able to lock in a lower rate than you are currently paying or have some other incentive in doing so.
While refinancing to get out earlier sounds like a great option, there are some risks to keep in mind:
- Closing costs: refinancing will involve a new set of closing costs to meet. Add in any attorneys, agents or others needed to help you guide the process, and also consider application fees, and other associated costs.
- Higher monthly payments*: You will likely be increasing your monthly payments to reach an earlier completion date.
- Potential penalties or fees: some lenders will charge a fee for prepaying of your loan ahead of time – you need to fully understand the terms of your existing mortgage before you refinance.
- Avoid balloon payments: if the initial mortgage had a balloon payment due (like on some ARMs), you could refinance to fixed payments or even start a new ARM to push back the balloon payment.
*Lower interest rates and lower payments are certainly obtainable with refinancing (and often the goal), but it may cost you an additional point or more at closing to get there. And it depends on how long you are looking to refinance your home – if you are trying to do it quickly, you will likely be paying more every month to get there, but you are paying less in overall interest costs. Our example assumes you are trying to pay off the mortgage as quickly as you can, so you would be accepting higher monthly payments as the means to that end.
The question of whether to refinance depends a lot on your own goals and the deals you are being offered. If the APR is going to be reduced significantly, you may not mind making low, fixed-rate payments for a longer period of time. If you have an earlier completion date in mind to reach, you may not mind paying as much as possible every month to get there. It is going to be driven almost completely by personal goals and circumstances.
What’s the Smart Play?
Keep in mind, experts are going to agree that you need to keep all your retirement accounts maximized BEFORE you look to prepay your mortgage. Retirement accounts can earn much more for you over time than the slow building equity of home ownership, so financial pundits will suggest that you always aim there, first.
Perhaps the smartest move, is to blend and balance your efforts. Keep aware of interest rates, and your own personal credit scores. As your personal credit becomes more powerful, the rates offered to you become lower and more advantageous. Pay extra whenever you can, using one or more of the simple strategies outlined in this article, and stay aware of refinancing options.
Set personal goals and see how you can best meet or exceed them. Project your likely cash flows and scenarios, so you can better protect yourself and your family. Do the math: use a refinancing calculator to see the impact of your decisions, extra payments or potential options.
Ultimately, a mortgage is something that most people will have to handle during their lifetime. How long they will have to handle it and under which specific terms, are where the unique situations of each individual start to emerge. Paying it off early is usually going to be a smart play, as you are reducing your cost of interest. How you finally achieve that goal, is really going to be up to you, and the marketplace.