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Paying off your mortgage—especially if you can pay it off early—is a great way to liberate your saving and spending capacity.
But there are lots of important considerations that go into the decision to pay off your mortgage early, not to mention developing a strategy to get it done. Use this mortgage payoff calculator to determine whether it’s the right move for you.
How To Use This Mortgage Payoff Calculator
Before you start, you’ll need to gather some information. Make sure you already know or have the following handy:
- Original mortgage loan amount
- Current interest rate
- Original loan term (years your mortgage spans)
- Outstanding balance on your mortgage
- Number of years in which you’d like to pay off your mortgage, if applicable
- Years left on the original mortgage term
As you use the calculator, there are some mortgage terms that you might need to know.
- Years remaining: The number of years left on your mortgage term
- Original mortgage term: The length of your original mortgage in years (15-, 20- and 30- year terms are the most common)
- Remaining mortgage amount: The loan amount you still need to pay, including interest (don’t confuse it with the remaining principal balance)
- Annual interest rate: The simple interest rate on your loan that doesn’t include private mortgage insurance, the origination fee or point(s) paid at the beginning of the mortgage (this is why this rate is lower than your annual percentage rate (APR), which does include these fees)
- Current mortgage payment: The monthly payment, principal and interest, based on your original mortgage amount (doesn’t include current homeowners insurance or taxes)
Mortgage Payment Terms
As you use the calculator, there are some mortgage terms that you’ll need to know.
- Years remaining: The number of years left on your mortgage term.
- Original mortgage term: The length of your original mortgage in years (15-, 20- and 30- year terms are the most common).
- Remaining mortgage amount: The amount you still have financed, including interest. This is not to be confused with the remaining principal balance.
- Annual interest rate: The simple interest rate on your loan that doesn’t include private mortgage insurance (PMI), the origination fee or point(s) paid at the beginning of the mortgage. This rate will be lower than your annual percentage rate (APR), which does include these fees.
- Current mortgage payment: The monthly payment, principal and interest, based on your original mortgage amount (doesn’t include current homeowners insurance or taxes).
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Can You Pay Off a Mortgage Early?
Many people with the resources may think paying off their mortgage early makes sense. After all, not having that recurring monthly payment while also getting to own your home free and clear can be a liberating feeling.
However, some types of mortgages come with prepayment penalties. For instance, closed-end loans—which make up most standard mortgages—can restrict prepayments entirely or require borrowers to pay a heavy penalty if they pay off or refinance their loan within a certain number of years (typically three to five). If you’re thinking about getting a mortgage and plan to pay it off early in some way, you may want to ask your lender about an open-end loan.
Also, not all borrowers are in the same financial situation. Even if you have the funds available to make additional payments, whether or not doing so makes sense warrants some assessment.
Should I Pay Off My Mortgage Early?
Before you make the decision to pay off your mortgage early, check with your loan servicer to confirm the remainder of your payout. Your mortgage balance may not accurately reflect the amount you owe—there may be additional fees and penalties.
Here are other things to consider:
- Review your outstanding debt. Mortgage payments often carry lower interest rates than other types of debt. If you have high-interest credit card debt, personal loans or auto loans, it’s generally a wiser move to apply extra payments to those expenses first.
- Weigh the return on investment. If you bought a home when interest rates were 4% or lower, saving on interest is unlikely to provide as much of a return on your money as you could get through investments. Do the math to see if prepaying your mortgage offers the best payoff.
- Evaluate how much cash you need. If you prepay your mortgage, your money is tied up in home equity, meaning you will have less access to cash for major life expenses and unforeseen emergencies.
- Understand the tax consequences. If you are eligible for the mortgage interest tax deduction on loans up to $750,000 (or up to $1,000,000 for loans originating on or before December 15, 2017), you lose that benefit if you pay off your mortgage in advance. Consequently, you will leave money on the table.
The decision to pay off your mortgage early is a personal one. If doing so provides you with peace of mind or saves you money in the long run, it could be a worthwhile decision.
However, deciding to wait might be a better choice if you have concerns about your monthly cash flow—say because the economy is shaky or you’re hoping to retire soon.
How To Pay Off Your Mortgage Early Using This Calculator
The additional payments mortgage calculator on this page helps you visualize different scenarios for making additional payments toward your mortgage. You can use it to determine how much more you’d need to pay if you want to hit a particular time goal—like paying off your mortgage in 10 years or by the time you retire.
Or if you have a specific amount of extra money to put toward your mortgage each month, you can use the calculator to see how quickly you’d pay off the debt with the increased payments. It can also break down what that means in terms of principal and interest, but it doesn’t take into account insurance and taxes.
Pro Tip
Keep in mind that you shouldn’t sacrifice other financial goals to pay down your mortgage faster. Focus on paying off other higher-interest debt and investing before you start cutting back in other areas of your budget.
More Ways To Pay Off Your Mortgage Early
Here are a few more creative strategies for paying off your mortgage early:
- Refinance to a shorter term. If you refinance into a mortgage that needs to be paid over a shorter period of time, you’ll pay it off sooner. You’ll pay more each month, but less interest over the life of the loan.
- Make extra principal payments. You can make additional principal payments every month, once a year or whenever you’re able. Doing so will reduce the amount you owe and the interest on it. If you’re paying PMI, it could help eliminate that liability, as well.
- Make bi-weekly payments. If your lender is agreeable, switch from paying your mortgage monthly to paying bi-weekly. This equates to one additional payment per year.
- Recast your mortgage. A mortgage recast involves applying a lump sum toward your principal and having the bank adjust your payoff schedule at a lower fee than refinancing.
Is There a Penalty for Paying Off My Mortgage Early?
You may have to pay a prepayment penalty if you pay off your mortgage within the first few years of the life of the loan. That amount can be hefty—often as much as 2% of the mortgage amount—enough to impact your calculations about early payoffs. The good news is that you can avoid the prepayment penalty by waiting until it no longer applies or, in some cases, talking directly with your lender about it.
Pros and Cons of Paying Off Mortgage Early
Paying off your mortgage early can be a smart financial decision, but it’s not always the best route for everyone.
Pros of paying off your mortgage early:
- You can save thousands or more on interest payments
- The money you once spent on your mortgage can be used to pay off other debt
- You can get rid of private mortgage insurancesooner
Cons of paying off your mortgage early:
- You won’t have cash on hand to invest or build your emergency fund
- If your mortgage rate is low (3% or less), you won’t get as great of a return as you might investing your money elsewhere
- You could lose your mortgage interest tax deduction, resulting in a bigger tax bill
Use a mortgage calculator to decide if the pros outweigh the cons, and get clear on your priorities before making the leap to early payoff.
What Happens When You Pay Off Your Mortgage?
While you’d think you’d own your home free and clear once your mortgage is paid off, it’s not quite that simple. Though each state operates a bit differently, the overall completion of the process is roughly the same wherever you’re located.
Once you fully pay off your mortgage, you’ll receive several documents called a mortgage release, which establishes that you have paid your mortgage in full and the lending institution no longer has a lien on your property. Also, expect your lender to send a canceled promissory note—an agreement you signed when you filled out your mortgage application and established your loan obligation.
You should also attain the home’s deed from your county, which proves you are the home’s sole owner. Your lender can help you with this process. Otherwise, you can file the required documents with the county yourself.
The timeline for receiving and filing all the various documents could take anywhere from a few weeks to a few months. You may also still have money in an escrow account, so be sure to ask your lender to send you a refund check if it turns out that this is the case.
Lastly, contact your state or county taxing authorities and homeowners insurance company to alert them to send you invoices if your lender was paying these bills via the escrow account. Property tax payments are mandatory. Homeowners insurance, on the other hand, is optional once your mortgage is canceled. However, it’s prudent to maintain coverage on your property to provide financial protection against damage and liability.
Frequently Asked Questions (FAQs)
Should I pay off my mortgage or grow my wealth?
The choice often comes down to whether you have retirement savings or not. The younger you are, the more you should focus on retirement savings.
Later on, when compound interest has grown your wealth, you could make extra payments toward your home loan principal to build more equity. Once you feel your retirement portfolio is in good shape, try to make extra mortgage payments early to reduce the principal you’re paying interest on.
What is a mortgage payoff statement?
Once you’re ready to pay off your mortgage, you’ll need to request a mortgage payoff statement from your servicer to make your final payment. The payoff statement is crucial because it will likely include some fees and interest calculations that you may not know about.
The payoff statement is good for a certain period of time, say 30 days, which will be specified in the statement. If you can’t make that deadline, it’s not the end of the world. It just means you’ll have to repeat the process when you are ready.
Aside from that, you should cancel any automatic payments on your mortgage, get a refund on your escrow, and let your insurance company and tax collector know you’ll be paying them directly (and make sure you save for these bills).
You might see a bump in your credit score after paying off your mortgage (if your credit is good, the boost will be negligible).
What documents should I keep after paying off my mortgage?
It’s a good idea to read up on the various documents you can expect to receive after paying off your mortgage. In general, you can expect to receive:
- Canceled promissory note (also simply known as a “note”), which your servicer may or may not provide
- Deed of trust or mortgage deed
- Certificate of satisfaction (for which you might pay a nominal fee)
- Final mortgage statement
- Loan payoff letter
You’ll definitely want to hang on to your deed, the certificate of satisfaction and the final mortgage statement.
Should I pay off my mortgage before retirement?
You might want to pay off your mortgage before retiring if you:
- Want to slash your monthly expenses before you transition to a fixed income
- Need to free up money for other uses in the future
- Want the peace of mind from not having to stress about keeping up with mortgage payments while in retirement
You might not want to pay off your mortgage early if:
- That money can go towards beefing up your 401(k), IRA or other retirement savings
- There won’t be enough cash reserves after you pay it off
- You are also carrying higher-interest debt, as those interest payments aren’t tax deductible
- Your mortgage rate is lower than what you’d earn on a low-risk investment with a similar term
Another way to thread the needle in paying off your loan faster is to refinance your existing mortgage loan to a shorter-term loan. You can also choose to lower your loan amount by increasing monthly payments or transferring a lump-sum payment toward the principal amount, so long as the payoff terms don’t have a prepayment penalty.
How much interest will I save by paying off my mortgage early?
How much you save will depend on several factors, most notably the original loan amount, the years remaining on your mortgage term, the interest rate and the size of your prepayment.
Consider these three scenarios using a 30-year, fixed-rate term at a 6% interest rate to see the estimated difference in interest savings. Each scenario assumes an original monthly payment of $1,798.65 with 25 years remaining on the mortgage.
| Original loan amount | Outstanding balance | Over how many years do you want to prepay the mortgage? | New monthly payment | Estimated interest savings |
|---|---|---|---|---|
| $300,000 | $250,000 | 15 | $2,109.64 | $159,860 |
| $300,000 | $250,000 | 10 | $2,775.51 | $206,534 |
| $300,000 | $250,000 | 5 | $4,833.20 | $249,603 |
While these savings over the long run are certainly eye-popping, keep in mind that your monthly payments will shoot up, so make sure you have the means to afford the higher payments along with your other expenses and debt obligations.
At what age should you pay off your mortgage?
While there isn’t a one-size-fits-all age deadline to pay off your mortgage, experts advise that you should aim to pay off your mortgage—and be debt-free overall—by the time you’re around 45 or 50.
Without debt weighing on you, you can set your sights on building up your retirement savings. Also, if you’re a parent, your kids may soon be college-bound or getting engaged. Paying off your mortgage ahead of time will free up cash that you can put toward tuition, wedding expenses and other major life expenses.
How do you calculate the mortgage payoff amount when selling a home?
The mortgage payoff amount is the same whether you’re refinancing your mortgage or selling your home. Either transaction requires you to repay the remaining balance on your home loan.
The payoff amount will typically be close to your remaining principal balance. You’ll owe prorated interest for a certain number of days, depending on what day of the month you repay your mortgage.
You can calculate the daily interest on your loan by multiplying your remaining principal balance by your mortgage rate, then dividing by 365. If you’re paying off your loan on the 15th of the month, your payoff amount would be 15 multiplied by your daily interest amount plus your remaining principal balance.
The best way to get your mortgage payoff amount is to request it from your lender. You may even be able to generate a payoff quote automatically when you’re logged in to your account.
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