Should You Pay Off Your Mortgage Early? (2024)

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Your house is probably the most expensive purchase you’ll make in your lifetime. So it’s no wonder if you dream of the day that monthly mortgage payment is gone for good.

If you have the extra cash, should you go ahead and pay off the loan ahead of time? Maybe. Here’s what to consider before paying off your mortgage early.

Can You Pay Off a Mortgage Early?

Because mortgages tend to be large loans that last for a couple of decades or longer, paying off the loan early can save you tens of thousands of dollars in interest. Not to mention, it feels good not having a monthly mortgage payment to worry about.

When you send in your monthly check to your mortgage lender, the payment is split between principal and interest. Early on in the loan, a large portion of that payment is applied to interest. As time goes on, more of the payment goes toward paying down the principal. This is known as amortization, and it allows the lender to make back a larger portion of their money within the first several years of repayment.

The key to paying off your mortgage early is by applying extra payments to the principal.

Should I Pay Off My Mortgage?

Just because you can pay off your mortgage early doesn’t necessarily mean that you should. Of course, it would feel great to rid yourself of a huge financial burden like a mortgage. But if you really want to know if it’s a good decision, you have to look at the math.

There are pros and cons to paying off your mortgage early. Whether the pros outweigh the cons will depend on your overall financial situation.

Benefits of Paying Off Your Mortgage Early

  • Save money on interest. By reducing the length of time you spend making mortgage payments, you’ll cut down the amount of interest you pay over the life of the loan. Depending on the loan amount, interest rate and original term, paying your mortgage off early could result in significant savings.
  • Free up money for later in life. The typical mortgage lasts 15 to 30 years. That’s a long time to be saddled with loan payments. By paying off your mortgage early, you’ll free up cash to spend on more exciting things when you’re a bit older, such as travel.
  • Increase home equity. Paying off your loan will increase the amount of equity in your home, which you could tap into with a home equity loan, home equity line of credit (HELOC) or cash-out refinance.

Disadvantages of Paying Off Mortgage Early

  • Less money for higher-interest debt. If you have credit card or student loan debt, funneling your extra cash toward paying off your mortgage early can actually cost you in the long run. This is because these other types of debt likely have higher interest rates.
  • Less money for savings. Putting all of your money toward your mortgage can also cut into what you can set aside in savings. If you’re going to focus on paying off your home loan early, it’s a good idea to make sure you have an adequate emergency fund first. It’s usually recommended to save up enough to cover three to six months’ worth of expenses so you can manage any unexpected costs without having to go into debt.
  • Could miss out on higher returns from investing. If you have the opportunity to invest your money for returns that are significantly higher than your current mortgage rate, you’d be better served doing that than missing out on compounding earnings to get rid of your mortgage faster. For example, if your mortgage rate is 3.5% and your portfolio earns an average of 6% per year, you’d lose money by using extra funds to pay off the loan early.

Tax Implications of Paying Off a Mortgage Early

If you pay off your mortgage early, you’ll no longer have any mortgage interest to deduct on your tax return if you itemize your deductions. This change is most likely to affect you if you have a large mortgage, a high interest rate—or both—-and your annual interest payments are substantial.

Since the Tax Cuts and Jobs Act of 2017 doubled the standard deduction, most people don’t itemize their deductions. This provision sunsets in 2025, which means the standard deduction will halve in 2026 unless Congress passes a new law.

If you do itemize your deductions, losing the mortgage interest tax deduction could make it harder to get over the standard deduction threshold that makes itemizing your deductions worthwhile. However, your taxes will be simpler and you’ll no longer be paying mortgage interest.

3 Key Questions To Ask Before You Pay Off Your Mortgage

If you’re thinking about paying off your mortgage early, ask yourself these three questions first:

  1. Am I sure I won’t need the money? Home equity isn’t liquid. If you later need to borrow money because you accelerated your mortgage payments, the new loan could be costly. You’ll also need good enough credit and sufficient income to qualify for a home equity loan. You’ll have to weigh these risks against the savings from paying less in mortgage interest.
  2. How low is my mortgage rate? If your mortgage rate is lower than the inflation rate or lower than the returns you could reasonably expect to earn by investing your extra cash, paying your home off ahead of schedule may not save you money.
  3. How much do I care about owning my home free and clear? For some people, the psychological benefits of not owing money are so substantial that they outweigh considerations like whether they could earn a higher financial return elsewhere. If that’s you, it might make sense to pay off your mortgage early.

Keep in mind that some lenders charge a prepayment penalty; if yours does, be sure to factor in that cost, too.

How to Pay Off Your Mortgage Faster

Here are the five best ways to pay off your mortgage faster, with the numbers to prove it.

1. Create Room in Your Budget

One of the most effective ways to pay off your mortgage faster is to pay more than the monthly amount due. That might seem obvious, but you might not realize just how far a little extra money can go.

For example, say you took out a 30-year fixed-rate mortgage of $250,000 at 5% annual percentage rate (APR) and have 25 years left on the loan. That would mean you owe $1,342.05 per month. Now imagine that you tack on just $20 extra to each payment. You’d shorten the repayment period by eight months and save $5,722 in interest. Use a mortgage calculator to help you do the math.

For an extra $20 per month, you’d simply need to cut out one fancy coffee a week or a couple of takeout lunches. Obviously, putting even more money toward extra payments will result in even more savings.

Just keep in mind that you don’t want to go overboard here and sacrifice other financial goals to pay down your mortgage faster. Mortgages are some of the cheapest loans out there, so be sure you’re paying off other higher-interest debt and investing before you start cutting back in other areas of your budget.

2. Schedule Extra Payments

Maybe you aren’t able to come up with the extra cash to make additional payments each month (or don’t want to). That’s OK—a couple of well-timed extra payments throughout the year can be even more effective.

Perhaps you receive an annual bonus from work or tax return each April. If you were to take $1,200 per year and apply it to that same mortgage example above, you’d cut your loan down by over three years and save over $25,000 in interest.

If you do decide to make extra payments toward your mortgage, be sure to check with your lender that the extra funds will be credited toward the loan principal. If you don’t specify how you want these payments applied, the lender will likely use them to prepay interest owed on your mortgage instead.

3. Refinance to a Shorter Term Length

It’s common for mortgage borrowers to opt for a longer repayment term in order to keep monthly payments low—typically 30 years. However, as time goes on, your income may increase or your lifestyle may change to free up more cash flow.

If that’s the case, you may be able to refinance your loan to a shorter term. Since the repayment period gets crunched into a shorter time period, the monthly payments will likely increase. However, this is an effective way to pay off your mortgage much earlier and save a ton of money on interest, especially if you also qualify for a lower interest rate.

Take a look at this comparison of a $250,000 loan with a 30-year, fixed-rate term versus a 15-year, fixed-rate term:

30-year fixed rate15-year fixed-rate

Interest rate



Monthly payment



Total interest paid



As you can see, it’s possible to save $84,655 in interest and pay off your mortgage in half the time by refinancing from a 30-year to a 15-year term.

Something to consider before refinancing, however, are mortgage closing costs, which typically total 2% to 3% of the loan amount. You’ll want to make sure that closing costs don’t negate the interest savings; otherwise, it may not be worth it.

4. Recast Your Mortgage

You’re probably familiar with refinancing, but you may not have heard about mortgage recasting. When recasting, you make one large lump-sum payment toward your principal balance. Usually, at least $5,000 is required to recast. The lender then reamortizes the loan to reflect the new balance.

Recasting a loan accomplishes a few things. For one, your monthly payment will decline. You’ll also save money on interest over the life of the loan. And if you apply those savings toward larger monthly payments, you’ll also pay off the mortgage early.

There is usually a fee required to recast a loan, though it’s typically just a few hundred dollars. Also keep in mind that not all loan types can be recast, including Federal Housing Administration (FHA) and U.S. Department of Veterans Affairs (VA) mortgages.

5. Pay Biweekly

One way to pay off your mortgage early that doesn’t require coming up with any extra payments is to split your monthly payment into two smaller payments and paying biweekly.

Here’s how it works: Most mortgages require a monthly payment, or 12 payments per year. If you switch to bimonthly payments, you end up making 26 payments per year—in effect, one extra payment. This not only quickens the pace of your loan payoff, but also saves you money on interest over the life of the loan.

Wondering how effective this strategy really is? Consider this: On a $250,000 30-year fixed-rate mortgage at 3.5%, you’ll pay off your mortgage four years early and save more than $20,000 in interest.

Not all lenders allow biweekly payments, though many do. If you want to switch to this payment method, contact your lender and double-check that they don’t charge a fee to do so.

What Happens When You Pay Off Your Mortgage?

Let’s imagine that you did pay off your mortgage early (a hypothetical congratulations to you!). What are the final steps for officially ridding yourself of the loan?

You’ll receive several mortgage release documents that show your loan is paid off and the bank doesn’t have a lien on your house. That will likely include a statement that shows your mortgage is paid in full, as well as a canceled promissory note.

It’s also common for the lender to notify the city or county recorder that you are the official, outright owner of the property. In some cases, however, you may have to take care of this yourself. If there are any funds left in your escrow account, your lender will send that money back to you, and you’ll be on your own when it comes to handling property tax and homeowners insurance payments going forward.

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Frequently Asked Questions (FAQs)

What is the best way to pay off your mortgage?

The best way to pay off your mortgage will depend on your individual circ*mstances and financial goals. For example, if you want to save money on interest and can afford to put extra funds toward your home loan, then focusing on making additional payments or even refinancing your mortgage could be a good choice.

How long will it take to pay off my mortgage?

Most mortgages come with 15- or 30-year terms. However, you might opt to pay off your loan more quickly by making extra payments toward your principal loan balance.

Is paying off a mortgage early with a lump sum a good idea?

If you have access to a lump sum, whether or not it’s a good idea to use it to pay off your mortgage early will depend on your financial circ*mstances. For example, if you can afford to lose the money, then putting it toward your loan payoff could help you become debt-free. But if doing so would severely cut into your savings and put you in a precarious position, then it’s probably not the right choice.

You could also consider recasting your mortgage if your lender allows it. This is when you pay off a portion of your loan balance with a lump-sum payment—typically between $5,000 and $10,000—in order to reduce your monthly payments. While this won’t change your loan term or interest rate, it could help you save money on interest charges by lowering the amount you’re paying interest on.

Just keep in mind that recasting usually comes with a fee, which can range up to $500 depending on the lender.

What are the cons of paying off your mortgage early?

While paying off your mortgage early can be appealing, there are some potential drawbacks to keep in mind. For example, putting extra funds toward your home loan instead of other high-interest debts (like credit cards or student loans) could mean paying much more in interest over time.

You could also miss out on higher earnings by paying off your mortgage early instead of investing the money.

Is there a penalty to pay off a mortgage early?

Some mortgage lenders charge prepayment penalties. These fees are incurred when borrowers pay off their loans ahead of schedule, and they generally start off higher when you first take out your loan before gradually falling to zero—usually within three to five years of your loan being in repayment.

If you’re planning on paying off your loan early, be sure to check your loan agreement or contact your lender to see if a prepayment penalty will be assessed.

What happens if I overpay my mortgage?

Overpaying your mortgage simply means paying additional funds toward your loan on top of your required monthly payments. If you overpay on your mortgage, the extra funds will be put toward your loan’s outstanding balance. However, if you make extra payments, tell the lender ahead of time (or in the online bill pay process) that it should be directed to the principal amount of your loan, so you pay off your loan faster and save money on interest.

Keep in mind that some lenders don’t allow overpayments or might place a limit on how much you can overpay. Check with your lender to see what’s allowed and whether any prepayment penalties will be applied if you pay off the mortgage early.

How do you pay back a reverse mortgage?

Unlike a traditional mortgage, a reverse mortgage allows homeowners to tap into their home equity. The homeowner doesn’t make payments; instead, they receive monthly installments from the lender.

A reverse mortgage won’t need to be repaid unless the borrower dies, moves or sells the home. In this case, the borrower (or their heirs) can either pay off the loan and keep the property (such as with a new mortgage), or they can sell the home and use the proceeds to repay the reverse mortgage.

What happens to escrow when you pay off a mortgage?

When you buy a home, you might have to begin making escrow payments to cover taxes and property insurance, depending on how much you borrow and the size of your down payment. If there are any funds left over in your escrow account after paying off your mortgage, the lender will refund the money to you. You might also be able to put these leftover funds toward your loan payoff if your lender allows it.

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Should You Pay Off Your Mortgage Early? (2024)


Is there a downside to paying off a mortgage early? ›

A: If you put extra resources toward a home loan, you'll no longer have access to that cash flow and that's one of the disadvantages of paying off a mortgage.

Is it better to pay off a mortgage or keep money? ›

It's typically smarter to pay down your mortgage as much as possible at the very beginning of the loan to avoid ultimately paying more in interest. If you're in or near the later years of your mortgage, it may be more valuable to put your money into retirement accounts or other investments.

Is it better to pay off mortgage sooner or later? ›

By reducing the length of time you spend making mortgage payments, you'll cut down the amount of interest you pay over the life of the loan. Depending on the loan amount, interest rate and original term, paying your mortgage off early could result in significant savings. Free up money for later in life.

At what age should you pay off your mortgage? ›

You should aim to be completely debt-free by retirement, and after age 45 you can begin thinking more seriously about pre-paying your mortgage. The opportunity cost of paying off your mortgage before investing for retirement is very high when you are young.

Will paying my house off early hurt my credit? ›

It's important to know that paying off a loan early doesn't impact your credit any differently than if you were to pay it off on time.

How to pay off a 250k mortgage in 5 years? ›

There are some easy steps to follow to make your mortgage disappear in five years or so.
  1. Setting a Target Date. ...
  2. Making a Higher Down Payment. ...
  3. Choosing a Shorter Home Loan Term. ...
  4. Making Larger or More Frequent Payments. ...
  5. Spending Less on Other Things. ...
  6. Increasing Income.

What happens if I pay an extra $100 a month on my mortgage? ›

If you pay $100 extra each month towards principal, you can cut your loan term by more than 4.5 years and reduce the interest paid by more than $26,500. If you pay $200 extra a month towards principal, you can cut your loan term by more than 8 years and reduce the interest paid by more than $44,000.

What happens if I pay an extra $2000 a month on my mortgage? ›

The additional amount will reduce the principal on your mortgage, as well as the total amount of interest you will pay, and the number of payments.

How does paying off your mortgage affect your taxes? ›

Should I pay off my mortgage early? There are both pros and cons to paying your mortgage off early. While you save on interest and have extra funds to use elsewhere, you will lose the federal mortgage interest tax deduction and could miss out on more lucrative investments.

What percentage of people pay off their mortgage early? ›

40% of Americans Pay Off Their House — Are They Doing Better Financially? For most Americans, a home mortgage is the biggest financial obligation they will ever have. A traditional mortgage spans 30 years and is often in the hundreds of thousands of dollars, so the interest charges can be enormous.

Is 50 too old for a 30 year mortgage? ›

If you can demonstrate an ability to repay the loan before you're 75 years old, they will consider your application no matter your age! For example, if you needed to borrow $300,000 and were 50 years old, the standard 30-year mortgage term could be reduced to 25 years and your loan would be approved.

What is the average mortgage balance? ›

These states had the highest average mortgage balance per borrower as of the end of 2022, according to Experian: District of Columbia – $492,745. California – $422,909. Hawaii – $387,277.

How to pay off a 30 year mortgage in 5 to 7 years? ›

The choice comes down to careful study and a decision based on your financial position and ability to repay what will be higher monthly payments.
  1. Pay Extra Each Month. ...
  2. Pay Bi-Weekly. ...
  3. Make an Extra Mortgage Payment Every Year. ...
  4. Refinance with a Shorter-Term Mortgage. ...
  5. Recast Your Mortgage. ...
  6. Loan Modification. ...
  7. Pay Off Other Debts.

How to pay off a 30 year mortgage in 15 years? ›

Look Into Refinancing

Refinancing your loan into one with a lower interest rate and/or a shorter term can help you pay off your mortgage faster. A shorter term usually comes with a lower interest rate, so you're saving on interest while also paying your mortgage off sooner than 30 years.

What happens if I pay an extra $1000 a month on my mortgage? ›

When you pay extra on your principal balance, you reduce the amount of your loan and save money on interest. Keep in mind that you may pay for other costs in your monthly payment, such as homeowners' insurance, property taxes, and private mortgage insurance (PMI).

Is it better to pay lump sum off mortgage or extra monthly? ›

Regardless of the amount of funds applied towards the principal, paying extra installments towards your loan makes an enormous difference in the amount of interest paid over the life of the loan. Additionally, the term of the mortgage can be drastically reduced by making extra payments or a lump sum.


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