Benefits of Paying Off Your Mortgage Early

By | September 20, 2011

Most people applying for home loans seek a 30 year mortgage instead of a 15 year mortgage because they worry that they will not be able to meet the monthly obligation of a 15 year mortgage, or they may think that there is no need to pay off their mortgage early.  However, there are important benefits to paying off a mortgage quickly.

  • Lower interest paid overall.  If you take out a $200,000 mortgage at 4% interest for 30 years, you will pay $143,739.01 in interest alone over the life of the loan.  The $200,000 mortgage is really a $343,739.01 mortgage when interest is included.
    In contrast, if you take out a 15 year mortgage instead, you will only pay $66,287.65 in interest, a difference of $77,451.36 in interest over the life of the loan!
  • Increased cash flow.  If you pay off a mortgage in 15 years, you increase your cash flow by decreasing your expenses, often by a thousand to two thousand dollars a month.  Just imagine having that extra money every month to do with as you please—help the kids out with college, travel, invest, the choices are yours.
  • Guaranteed investment.  In today’s market, it is increasingly difficult to find investments that pay a high percentage.  By paying the mortgage off early, you are making a solid investment by reducing your overall interest paid over the life of the loan.
  • Less concern about the market.   Housing markets go up and down over time.  If you own your house outright, you are less concerned with these market fluctuations.  You don’t have to worry about being upside down with your mortgage.  Whatever amount you sell your house for will be yours, free and clear after fees.

Steps to Take If You Can’t Afford a 15 Year Mortgage

In the $200,000 mortgage example given above, the difference in the monthly payment amount between a 15 year mortgage and a 30 year is $524.55.  If you can afford the difference, you should take the 15 year mortgage instead.  But what if you can’t afford the difference?  Consider these options to still take advantage of the benefits of paying the mortgage off early:

  • Refinance.  Refinancing your home loan at a lower interest rate may lower your payment and allow you to pay extra on the mortgage.
  • Make 1/2 payments every two weeks instead of monthly payments.  Doing this will allow you to make 13 full payments a year instead of the standard 12, enabling you to pay off a 30 year mortgage about 5 years early, depending on the size of the mortgage.
  • Put any windfall money toward the principal.  Are you getting a $500 bonus at work?  Put that on the mortgage.  You will be surprised how many bonuses you receive throughout the year.

While many people borrow for 30 years, there are definite advantages to paying down the mortgage more aggressively.  Try some of these strategies to lessen the interest burden you will pay over the life of your loan.

Jack is a freelance writer where he writes about topics including mortgage and debt.


2 thoughts on “Benefits of Paying Off Your Mortgage Early

  1. Bret @ Hope to Prosper

    Something that works great is to takeout a 30 year loan, but make the bigger payments, like those of a 15 year loan. Then, you can pay the loan off early, but have a smaller minimum payment if you get sick or laid off. We did this and we will have our house paid off in 21 years. We only have five years left to go and I’m really looking forward to not paying a mortgage.

  2. Real Estate Brokers

    I have always explained to my buyers to make an extra payment on your mortgage per year, it reduces the amount of interest, and applies to balance reducing what you owe, with so many short sales and customers and friends who owe more on the mortgage, this may be an alternative.


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