Credit Nerds – Mortgage Facts

A mortgage is a large, long-term expense and the prospect of taking on that kind of debt for years to come can be daunting. Just because you start out with a set of a repayment term for your loan doesn’t mean you can’t pay it off ahead of your schedule. It is possible to pay off your mortgage early, but whether it’s the right decision for you depends on a variety of factors.


The obvious pro of paying off your mortgage early is that you will eliminate that outstanding debt. You can say goodbye to your monthly payments. Paying off your loan ahead of schedule saves you money on interest as well; the faster you pay it off, the less interest you will have to pay on top of the principal. Once your mortgage is paid off, you own your home outright and you never have to worry about foreclosure. By eliminating that monthly payment on your home, you can allocate that money elsewhere and do things like saving for retirement, starting or adding to a college fund, bulking up your emergency savings, investing, or simply enjoying the new disposable income you have each month without a mortgage payment.


There are some potential downsides to paying off your home loan early. Once your mortgage is paid off, you are no longer able to claim the mortgage interest tax deduction which uses the amount you pay in interest to reduce your taxable income. Some lenders charge a prepayment fee if you refinance, sell your home, or pay off your mortgage within a certain period of time following closing. You should check to see if your lender does charge this kind of fee and, if so, determine whether the cost incurred is worth it versus waiting to pay off your loan until the stated time range has passed. Something to bear in mind when paying off any kind of loan is that it can actually hurt your credit score. This is most important to think about if you are trying to secure some other kind of loan at the time you are thinking about paying off your mortgage. However, your credit score can always be improved upon, so this should not necessarily deter you from paying off the loan if it is beneficial to you in other ways.

Things to Consider:

In some cases, pursuing other investments can bring in more money than paying off your mortgage early. It may be worth looking into alternative investment opportunities that you can put the money towards rather than paying your mortgage off ahead of schedule. This is more likely to be the case when you have a lower interest rate and therefore are not accruing as much interest on top of your principal. This is a nuanced issue, and one worth discussing with a financial professional or your lender. When it comes to debt, you should generally focus on paying off higher-interest debt ahead of lower-interest debt, so if you have loans with an interest rate higher than that of your mortgage, you may want to prioritize that. You also want to make sure that paying your mortgage off early doesn’t deplete your cash reserves or savings. Paying off your loan early may be beneficial in some ways, but if it leaves you without any money for paying bills or emergency expenses that come up, it can cause more problems than it solves.

How to Pay Off Your Mortgage Early:

Feasibly, the most common way to pay off your mortgage early is to make extra payments, usually by going from monthly to biweekly payments or making an extra monthly payment. Biweekly payments break up your monthly mortgage in half and result in you making what equates to 13 months of payments in a given year rather than 12. An extra monthly payment is when you pay more each month. When you do this, it is important that you specify that the payment go towards principal, not interest. Alternatively, you can refinance your mortgage to secure a lower rate which may enable you to make additional payments by spending less on interest. You can also refinance to a shorter term (e.g. from 30-year to 15-year or 20 years), thereby setting you up to pay off your mortgage earlier. If you find yourself with extra money to spend all at once, you could also contribute lump-sum payments outside of your monthly payments in order to chip away at the principal. There are a variety of options for paying off your loan early, and you should consult your lender to determine the best course of action for your unique situation.

Are you thinking about paying off your mortgage or buying a new home? Let’s do this!

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