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Considering paying off your mortgage early? On an emotional level, you may want the security of a free and clear home, but paying off a mortgage isn't a one-size-fits-all solution.

A mortgage payoff calculator can help you crunch numbers. Before making a final decision, you should consider your overall financial position.

On this page, we take a look at the pros and cons of an early home loan completion. In the process, we'll answer some of your most frequently asked questions. Read on to learn more about the early mortgage payoff process and whether it's right for you.


Why use a mortgage payoff calculator?

This helpful tool will show you what your monthly scheduled payments will look like based on your increased contributions. It'll also let you know what your total mortgage interest will resemble.

Once you've considered the factors discussed in this article, the numbers you crunch with a mortgage payoff calculator will help you decide what makes the most sense for you.

Some people opt for adding a couple hundred dollars towards their monthly bills. Others place a lump sum towards their principal, usually in the form of an insurance or inheritance payout.

Just make sure that any extra payments you make go directly towards the principal.

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Why pay off a mortgage early?

If you're considering paying off a home loan early, one benefit is reducing your interest expenses and term length. Using a payoff calculator can help you determine how much you'll save in both instances.

The issue of feeling secure in your home leads many to choose early payoff. But it may not actually make the most financial sense for you at the moment.

To get a better idea of the pros and cons of early payoff, continue reading.

Is it better to pay off a mortgage earlier?

This remains among the most frequently asked questions that we get from homeowners. And it doesn't come with a cut and dry answer. Pros and cons to early payoff exist.


Our frequently asked questions assume one thing--that you've got a low, fixed rate home loan.

If not, and you're planning on staying in your home, your number one priority should be getting refinanced to a low, fixed rate mortgage.

But there's a caveat when it comes to refinancing. Don't extend the loan term hoping to save on lower interest.

This defeats the purpose and the benefits will be negated by the extra time on the loan.

Once you meet this basic criterion, you need to look at your finances as a whole to determine if an early payoff looks right for you.

Don't end up cash poor just because you're impatient to wrap up your loan.

Do You Have Other Debts?

Having other debt should place your mortgage on the back burner. Period.

In almost all cases, a home loan should be the least expensive debt that you carry. It should come with lower interest charges than a car loan, credit card, school loan, or even a second mortgage.

Higher interest rate loans should get paid off before lower interest rate ones to save the most in avoidable charges possible.

If you've got any of these encumbrances hanging around your neck, it makes sense to pay them off before increasing your monthly mortgage payments.

But what if I have a 0% interest rate on my other debt?

That's great. But it's usually temporary.

Zero percent interest rates apply to short-term loans and special windows of time designated by credit card companies to attract new customers. But your interest rates will go up before you know it.

What's more, with some loans and credit cards, if you carry debt from the zero percent window past the special period, you get charged back interest. That adds up!

Don't get stuck holding the bag. Pay off zero percent interest debt before tackling your home loan.

What else should I consider?

Some people think of debt as "bad." As a result, they assume that paying it off as soon as possible will benefit them financially. But this isn't necessarily true.

Quality of Life

Don't pay off all of your debt in one fail swoop if it will cripple you financially. After all, you need an emergency fund, which should cover a minimum of twelve months worth of expenses.

You should also be in a position to set aside at least 20 percent of your gross income in retirement savings accounts such as 401ks and IRAs.

Exit Fees

Besides the factors listed above, make sure that there's no prepayment penalty. Or, again, the money you're hoping to save in interest will end up going toward a penalty.

While a three percent penalty may not sound like much, on a $250,000 mortgage that's $7,500.

Should investing come before a home loan payoff?

Well, that depends. You'll need to consider how you want your money to work for you.

If you've got a knack for making great investments, your money will most likely perform better through investments than tied up in an early mortgage payout.

Think of your mortgage as the best loan you'll ever get. Or, as Ric Edelman puts it:

"Mortgages, in fact, are the cheapest money you will ever be able to borrow. (Oh, sure, you can get a credit card that offers 0% interest for six months, but try to borrow a couple hundred thousand for 30 years that way.)"

Should a mortgage payoff come before big purchases?

Devote some time to thinking ahead. Which big expenses do you see heading your way in the near future?

  • Do you have money set aside for vacations?
  • Is a wedding in you (or your children's) futures?
  • Is your home begging for a remodel?
  • Will you need to purchase a new set of wheels soon?
  • Have you made provisions for your children to go to college?

While it may appear counterintuitive at first to hold off on a mortgage payoff because of the circumstances above, it's not.

After all, why go into debt on a large purchase just because you exhausted all of your savings to pay off a low, fixed rate mortgage?

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