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Pay off your mortgage early?

By Judy Martel · Bankrate.com
Thursday, September 20, 2012
Posted: 10 am ET

It might seem like an insurmountable task, but paying off your mortgage early can be done. The question is, should you? The answer depends on many factors, including other household debt, investments, mortgage rates and age of the homeowners. But for those in the position to do so, the satisfaction of ditching a long-term debt is hard to beat.

Greg McBride, senior financial analyst at Bankrate, says the percentage of homeowners who can afford to pay off their mortgage early is small. "I can make a stronger argument against it," he says. "Paying off a low-rate, tax-deductible loan is very low on the list of financial priorities for most people." Most homeowners haven’t even come close to maxing out retirement accounts or saving an adequate emergency fund, he notes. Many are also carrying too much high-interest credit card debt.

He describes two scenarios where homeowners might pay off or pay down a mortgage early. One is a borrower whose loan balance is between the cutoff amount for a jumbo mortgage and conforming mortgage (generally, mortgages of less than $417,000 are conforming). In that case, it would make sense to pay down the loan in order to qualify for the lower-rate mortgage.

Another example would be the homeowner who has maxed out retirement accounts, has no other high-cost debt, an adequate emergency savings account, and is not saving to put a child or grandchild through school or for any other major expenses. "Then it might make sense, particularly if your loan balance is low enough that the tax deduction isn't worth it, or if you are unable to refinance," McBride says. "The benefit of eliminating a monthly payment is that you're freeing up a significant amount of money in your monthly budget."

Read the stories of three homeowners who paid off their mortgages early, and use this calculator to determine if you can do it.

If you've paid off your mortgage or paid it down, tell us how and why you did it.

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39 Comments
PHOUVIENG
September 09, 2013 at 6:01 pm

I LIKE TO PAY OFF MY MORTGAGE EARLY I AM 44 YEAR OLD I JUST DONT KNOW HOW. I HAS A BAD CRDIT MY HOUSE UNDER THE WATER NOW.

mr C
September 05, 2013 at 4:28 pm

Hello is there a formula to use to calculate how much extra to pay on your mortgage?

Just bought a house in milpitas ca and got a 15 yr loan would like to pay this off in ten yrs, is there a spreadsheet or generic program to use where we just enter our info like P&I Taxes Hoa etc
to calculate how much extra to pay

From what I have read adding a extra payment a yr will reduce it like 18 months is that about right

Thanks
Mr C

donna
September 27, 2012 at 2:20 pm

im a retired(20plusyrs)from active duty military..im hoping to pay off my house this year..my morgage is with a credit union..ive paid off all my bills..(except morgage)at 3.5percent..for almost 3 yrs ive added approximately,150.00,to the principalon each payment...im also have a status of 100percent disability..so all my medical,and all is paid off..im a very young 60..my question is this,about 8 yrs ago i suddenly lost a family member..the spouse also past away..they had nothing,although both worked.i wanted to help them.one was going into his last yr.at a universaty,the other,was beginning his 2nt yr..both worked at jobs as well..this all occured in 2004..in aug,2005,we had to evacuate here due to hurricane katrina..they were renting most thier life..and,owned nothing..i wanted to help them out..for close to yr.they,had no classes..and work was next to empossible to get.anyway,as well they lost thier place to rent for 6 r more months..they both had to stop going to university,and have done work anyplace they can..but,my main question is,i didnt want them to get bad credit,so i was able to off ones school loan in full.but,i couldnt afford to to completely pay off the other loan,so i put equal amout twds his loan..they set up a consolidated deal..but,due to personal issues he was not able to continue payments...im worry if this will ruin his credit forever..could u advice anything to me i can tell him about
thank you

donna
September 27, 2012 at 2:14 pm

im a retired(20plusyrs)from active duty military..im hoping to pay off my house this year..my morgage is with a credit union..ive paid off all my bills..(except morgage)at 3.5percent..for almost 3 yrs ive added approximately,150.00,to the principalon each payment...im also have a status of 100percent disability..so all my medical,and all is paid off..im a very young 60..my question is this,about 8 yrs ago i suddenly lost a family member..the spouse also past away..they had nothing,although both worked.i wanted to help them.i was going into his last yr.at a universaty,the other,was beginning his 2nt yr..both worked at jobs as well..this all occured in 2004..in aug,2005,we had to evacuate here due to hurricane katrina..they were renting most thier life..and,owned nothing..i wanted to help them out..for close to yr.they,had no classes..and work was next to empossible to get.anyway,as well they lost thier place to rent for 6 r more months..they both had to stop going to university,and have done work anyplace they can..but,my main question is,i didnt want them to get bad credit,so i was able to off ones school loan in full.but,i couldnt afford to to completely pay off the other loan,so i put equal amout twds his loan..they set up a consolidated deal..but,due to personal issues he was not able to continue payments...im worry if this will ruin his credit forever..could u advice anything to me i can tell him about
thank you

Mike
September 26, 2012 at 3:46 pm

1) Actually, the number of people under water is a significant minority. The public should realize that the majority of homeowners bought well before the housing crisis. I bought in 1999 for 241,000. The home's value hit a peak at 500,000 in 2006. The market for it is now around 360,000. I paid off this year. As housing prices recover, the appreciation goes right to my bottom line, not the bank's.
2) I actually paid off the mortgage to pay for college, instead of holding a low interest loan, I'm using the amount I used to pay to the bank for college costs. Interest free. In 3.5 years, my free cash flow should go through the roof.

Eric
September 25, 2012 at 9:28 am

It is rather comical to read some of the comments on this page. I'll give you some highlights of incorect statements and some comments I really like.

George says you must be an idiot NOT to pay off your mortgage. I'd point out that if someone has an 18% credit card or kids going to college, that there are better uses of the money than paying off a low interest house. for the record I paid off my first house in 7 years, sold that house and have a comfortable 15 year payment at 3% interest.

Selena claims it is stupid to pay off a house because you can't sell your house. In her wall of text she rambles on and on about how hard it is to sell a house. What confuses the heck out of me is why she thinks you have to sell your house once it is paid off. For some of us, paying it off was the best investment of our money. When I paid off my first house it was a guaranteed 5.5% return on my money.

J Berkley claims you only rent your house if you don't have it paid off. That is blatantly false. You have a restriction on your house where the bank has first claim to the amount you own, but you have full rights to the usage of your house. I hear this lie over and over and it becomes very tiresome.

John - I like you. You paid off your house, it relieved a burden from your mind. Sounds like you have it figured out.

Ricardo - Awesome. Sounds like you and your wife are a combination of good planners and lucky people. You can't beat that!

Idy - You paid your house off in 5 years and give money to charity. You are a winner.