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What are the Pros and Cons of Paying Off a Mortgage Early? » Mortgages » What are the Pros and Cons of Paying Off a Mortgage Early?



Are you trying to decide whether you should pay off your home mortgage? The benefits of paying off a mortgage early can make a substantial difference to your financial future. There is the chance to save many thousands of dollars on your home loan interest costs with an early mortgage payoff, but there are many things to consider before committing to paying extra.

We’ll review some of the benefits, as well as the disadvantages of paying off your mortgage faster than you need to, giving you some tips to make it as easy as possible.

Should you pay off a mortgage early?

While contributing more money towards your mortgage may seem like an excellent idea, the experts don’t necessarily agree. There are more factors to consider that don’t always make paying your mortgage off sooner a better choice. Let’s take a look.

Your mortgage payments go towards both paying back the loan and paying the interest on the loan. In the early years, the money you pay goes more towards the interest than the loan repayment. This is because in the beginning, when you’ve just gotten your mortgage, the size of the loan is at its largest, but as you pay this down, the interest is reduced.

However, if you can reduce the loan balance faster, you will make a big difference to your overall interest payments. Since you are making extra payments, these can be applied directly to the balance of your loan instead of paying the interest.

When you make extra payments, you should make sure that these are applied to the debt balance and not for paying the interest.

Even a relatively small amount of extra money applied to the loan balance can reduce the amount of interest you pay on the loan massively. Even finding just $100 extra money each month to contribute towards your mortgage debt is well worth doing.

On an average 30-year mortgage, doing this could reduce the length of your mortgage by about six years and save you between $20,000 and $30,000.

But even if this seems like a bit of a no-brainer, paying off your mortgage earlier might not be your best option. Whether this is the best use of your available finances will depend on your unique set of circumstances.

When you shouldn’t pay off a mortgage early

If you have other debts with higher interest rates, it is better to prioritize those ahead of your mortgage. If you have a student loan or credit card debt, they are likely to have higher interest rates, so you will be better off getting rid of them first. Check the details of any debts you have and compare them to your mortgage interest to see which will be most beneficial to remove first.

It would be best if you didn’t use all your available cash either. It is recommended that you have an emergency fund to draw on when an unexpected bill appears. You need to have a reasonable amount in your emergency fund before considering paying extra on the mortgage.

You might also have other spending priorities that are more pressing than contributing extra to your mortgage. Perhaps you have a 401(k) or IRA to contribute to or some other planned expense.

Although rare, your lender might have included an early payment penalty on your mortgage. If that is the case, it could mean that you will pay the same interest even if you have reduced the balance of your loan early. Check if you have any prepayment penalties on your mortgage with your lender.

When paying your mortgage early really pays off

You don’t need to suddenly earn thousands more each month to consider paying more towards your mortgage. Just $50 or $100 each month can make a real impact.

If you have enough money saved up to cover emergencies, and on top of that, have at least 3 months to 6 months of funds saved to pay your household bills, extra mortgage payments could be a good choice. Without any other debts that could have higher interest rates, contributing more to your mortgage debt might be your best option.

If you can start paying more early on into your mortgage, even a small amount of money will have a greater effect. There are online calculators available to help you work out how much you could save by making these extra payments.

Tips to help you pay a mortgage off early

If you’ve decided that paying off your mortgage is a priority, there are a few options to help you reduce the length of your loan and the interest you pay.

Biweekly Payments

By switching to a biweekly payment schedule, you will be able to make one extra monthly payment per year. Since there are slightly more than 4 weeks in every month except for February, paying half your monthly amount every two weeks will result in you paying 13 monthly payments each year.

This shouldn’t be too much of an additional stretch on your finances and will speed up your goal of paying off the loan.

Making an Extra Payment

One extra payment per year could knock four or five years off your mortgage. If you can commit to one additional payment, it will save you a lot of money in the long run.


If you have increased your income and can afford to pay more towards your home loan, refinancing for a shorter loan period can also get you a lower interest rate. It will mean your monthly payments increase, but you will be able to remove your mortgage debt faster without worrying about making extra payments.

Closing thoughts on early payoff

While making extra payments on your mortgage will have great long-term benefits to your finances, it isn’t going to be right for everyone. Deal with more expensive loans and credit lines before you consider paying more on your mortgage.

You also need to have money available in case of emergency, and you could have other spending priorities that get in the way. But if you have funds to spare in your monthly budget, using it to pay off a mortgage early makes a lot of sense.

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