What You Should Know Before Paying Off A Mortgage Early


As perhaps the single largest expense most homeowners will incur on a monthly basis, it makes perfect sense for borrowers to dream of paying off their mortgage early. The idea of eliminating such a burdensome debt is enough to make anyone at least consider the possibility of owning their home free and clear.

While it may sound like a good idea to pay off your mortgage early, there are always two sides to every coin. On the one hand, paying off the mortgage early will rid homeowners of a hefty monthly mortgage obligation; on the other, their liquidity will all but disappear.

There are essentially pros and cons to each strategy, which begs the question: What happens when you pay off a mortgage early?

Retirement Planning: Should You Pay Off Your Mortgage Early?

There is no universal answer to whether or not you should pay off a mortgage early; only circumstantial suggestions. Whether or not a borrower should pay off their mortgage early will depend entirely on their personal situation and long-term goals.

Those planning for retirement may be better off paying their loan down slowly overtime. While it may sound counterintuitive, retaining one’s monthly mortgage obligations could actually serve as a greater long-term strategy. After all, there’s one amazing benefit to holding onto the cash that would have otherwise been spent to pay off the mortgage early: liquidity.

Those that don’t spend an incredibly large sum of money to pay off their mortgage will have more access to working capital; capital that, if invested wisely, could help them build an adequate nest egg. The money retained could be used to invest in a rental property that produces cash flow well into retirement.

For example, if your retirement goals include having a steady stream of monthly income, investing in real estate that produces cash flow is a more strategic move than paying off your mortgage quickly.

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Mortgage pay off calculator

Mortgage Payoff Calculator

If you are more inclined to pay off your mortgage early, there are tools specifically designed to help you do so. In the hands of resourceful homeowners, Bankrate’s Mortgage Payoff Calculator is a great tool for determining what it’ll take to pay off a respective mortgage in a shorter period of time. Provided you have access to all the necessary numbers, and have an idea of when you want to pay off your mortgage by, calculating your own exit strategy is as simple as plugging in the appropriate numbers.

The Best Ways To Pay Off A Mortgage Early

While refraining from paying off your mortgage early offers a more liquid cash position to many homeowners, there are those that may actually benefit from ridding themselves of such a large debt. Those with incredibly high interest rates, for example, may want to take care of their mortgage sooner rather than later. In the event you are convinced paying off your mortgage early is in your best interest, there are a number of strategies that may be used. The following lists the best ways to pay off a mortgage early:

  • Make An Extra Payment Each Quarter: Borrowers able to make one extra payment every quarter will find their efforts worth while. Not only will making one extra payment every three months help them pay off their mortgage earlier, but it’ll also save them a considerable amount money in interest. Making one extra payment every quarter on a $220,000 loan with an interest rate of 4% over the course of 30 years could cut 11 years off the life of the loan and keep somewhere in the neighborhood of $65,000 in their pocket.
  • Make Small Sacrifices: The most obvious way to pay off a mortgage early is to contribute more to your payments each month, but I digress. Not everyone has extra cash laying around to dedicate to their mortgage payment. That said, it may benefit a great deal of homeowners to make a few small sacrifices; that way, they’ll be able to allocate some the money they save into their mortgage payments. How much could you save if you didn’t buy coffee everyday? According to the Acorn’s Money Matters Report, the average American spends $3 per day on coffee. Over the course of a month, that money can easily turn into $90. Depending on your own mortgage underwriting, $90 a month could simultaneously save you from paying thousands of dollars in interest over the course of the loan and cut off several years of payments.
  • Refinance: Homeowners looking to reduce the amount of time it takes them to pay off their mortgage should consider looking into refinancing. More specifically, consider refinancing a 30-year mortgage into a 15-year fixed-rate mortgage with a payment that is no more than 25% of your take-home pay. Not surprisingly, doing so will cut down the amount of time it takes to pay off the mortgage and significantly reduce the amount you spend on interest.
  • Downsize If Possible: Provided the borrower is in a position to do so, a simple way to pay off a mortgage earlier is to downsize their living arrangements. Downsizing could drastically reduce the amount you owe on a mortgage, and––in turn––the length you expect to pay it down. If you are certain you want to prioritize paying off your mortgage early, consider selling your current home and using the profit from the transaction to buy a smaller, less expensive one. It’s entirely possible to get rid of your mortgage altogether if you have enough equity built up.
  • Buy Responsibly: More borrowers will be able to pay off their mortgage quicker if they just practice responsible buying habits. In other words, it’ll be easier to pay off a loan sooner if you buy responsibly. It is of the utmost importance to buy a home you can actually afford. That doesn’t mean buying a house that’s just within your price range, but rather just under. Doing so will keep more money in your pocket and enable you to concentrate on paying down the loan faster.
  • Maximize Your Down Payment: The more one is able to put towards the down payment, the better. At the very least, a 20% down payment will prevent the borrower from having to pay private mortgage insurance (PMI), which can amount to thousands of dollars a year. More importantly, the more put down up front, the less that will need to be financed. The less that is financed, the lower the mortgage payments will be––effectively making it easier to pay off the loan earlier.


If you want to pay off a mortgage early, hopefully these tips have helped make your decision clearer. For those focused on retirement, there’s value to be had in retaining payments and using your liquidity to make passive income investments. However, for those with high interest rates and large monthly payments, paying the mortgage off early can be quite helpful.

Key Takeaways

  • Should I pay off my mortgage early? It’s a simple question, but the answer will depend on your own unique situation.
  • The best way to pay off a mortgage early will depend on the lengths the borrower is willing to go and the date they hope to be out of debt by.
  • Just because you know how to pay of a mortgage early doesn’t mean you should. There are a number of things to consider before making any sort of a commitment.