Early Mortgage Payoff Calculator
Should I Make Extra Prepayments?

Last Updated: January 04, 2020
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Should You Pay Off Your Mortgage Early?

While some families have managed to achieve a debt free lifestyle, 80% of Americans have some type of debt. While 30% of Americans are mortgage free, the vast majority do not see an easy path to pay off their mortgage early. However, even a small effort to pay off your debt faster can lead to thousands of dollars in savings. With our InvestmentZen early mortgage payoff calculator, you can quickly find out how much you can save with early payments.

The Typical Mortgage

The average home price in the United States is around $250,000. Some markets offer much more affordable housing while others are extremely expensive. In most cases, borrowers should put down a 20% down payment, leading to an average mortgage of around $200,000.

For a typical 30 year fixed mortgage with a 4.5% interest rate, the scheduled monthly payment is $1,013. Paying that amount every month for 30 years will ultimately pay off your mortgage, but you will pay almost $165,000 in interest! The total payments over 30 years almost add up to paying for the house one and a half times. But a little extra payment can go a long way.

How an extra $20 per month can make a difference

Most mortgages come with no prepayment penalty. This means you can pay extra on your monthly payment to pay off your loan early. When you make a larger mortgage payment, the additional dollars directly lower your principal.

If you were to pay an additional $20 every month with your mortgage payment, you would save $7,216 in interest payments over 30 years compared to the example above. But you wouldn’t have to pay for an entire 30 years. The extra $20 shortens your mortgage repayment period by 14 months.

How an extra $100 per month can make a difference

If you can pay even more into your monthly payment, it has a bigger impact. $100 more in the monthly payment from the example $200,000 mortgage above would cut five years off of the loan payback period! You would be mortgage free in 25 years instead of 30. That is a big win!

Even bigger, this would save $31,746 in interest over the life of the loan. Saving $7,000 is great, but saving over $30,000 is a big deal and will have a serious positive impact on your finances.

Earlier payments have a bigger impact

While these scenarios are good examples of a consistent extra payment, you don’t have to pay the same amount every month. As long as you pay at least the minimum, you are safe. But some months you might get a tax refund, work bonus, or other one-time lump income that would be a great way to pay off a bigger chunk of your mortgage.

Because of the way interest is calculated for mortgages, additional payments early on have a bigger impact than later in the life of the mortgage. While the final payoff may seem far off, making extra payments in the early years of the loan can help you save hundreds or thousands of dollars in interest.

Free up cash for savings and a better life

Once your mortgage is paid off, you can use your newfound cash every month for anything you want! Imagine an extra $1,000 or more every month to save, invest, or even take an occasional vacation.

Many young people use the acronym YOLO, You Only Live Once, when making decisions. You can absolutely apply this philosophy to your mortgage. You only live once, so don’t live with debt for decades. Instead, get your expenses paid off early to ensure a successful financial life.


How much do you save by making an extra mortgage payment?

The amount you save from an extra payment depends on your specific loan terms. Our mortgage prepayment calculator can give you those exact results based on your mortgage. In general, you will save more by making prepayments on higher interest loans and earlier in the loan’s life cycle than later on.

How do you pay down your mortgage faster?

Paying your mortgage down faster is simple. You can make an additional principal payment on any payment. If you pay by check using your mortgage payment vouchers, you can write a larger check to lower your balance. If you make payments online, you can update your payment amount at your mortgage lender website or through your bank’s bill pay.

Should you pay off your mortgage early?

If you have the means, you should definitely consider paying off your mortgage early, especially if your interest rate is on the high end and don't have other investment strategies in place. An early mortgage payoff can save you thousands of dollars in interest. In addition, it lowers your monthly expenses once paid off so you can focus your money on savings, retirement investments, and other needs. However, if you have the willpower to consistently invest in the stock market and don't plan to retire for a decade, it may be better to put the money towards equities instead - for more details check out this alternative approach.