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Can You Pay Money off Your Mortgage?

You might be among those homeowners that wish to get out of debt early for various reasons. So, the question is – can you pay money off your mortgage?

Can you pay money off your mortgage? Yes, you can reduce debt by overpaying your monthly mortgage installments. This way, you can repay your mortgage loan sooner and pay less interest. If you can manage to do it, it’s a good idea, and it’s also a form of making substantial savings.

 A calculator and a notepad on a pile of cash

If you are a homeowner that has a wish to invest further, reducing your debt and avoiding interest rates can be the wisest way to go. For retirees, it’s even more important to pay off debt sooner, as it increases their cash flow.

Can You Pay Money off Your Mortgage?

Taking a mortgage loan to buy a roof over your head or invest in a property is always a long-term commitment. In fact, the mortgage becomes your tangible personal property. However, there are many benefits and advantages if you decide to pay off your debt early and remove the lien on the property. You can take additional funds and accelerate the payoff process. There are several approaches to this, and you should consider which is more convenient for you.

If it suits you, you can make an extra monthly payment or decide to make your payments every two weeks. The first approach can save you tens of thousands of dollars in the long run because you’ll either be paying an extra amount against the principal each month or decide to go for an extra payment annually. The second approach is less noticeable in the budget, but in the end, you will also be paying 13 installments instead of 12.

What to Ask Your Servicer or Lender

Paying additional installments every two weeks is much less burdensome to the budget than making extra annual payments for the land or home you’ve purchased. However, it may happen that your servicer or lender doesn’t accept such additional payments, although the majority do. If they don’t accept, you can take the funds you meant to pay and set them aside for lumping them into a larger monthly payment.

Also, another thing you should check with your lender is towards which sum will your additional payments be redirected. You need them to be applied in the correct way, that is – to reduce the principal and not to be directed toward interest.

A couple talking to their lender

Pros and Cons of Paying off Mortgage Early

While the benefits of the early payoff of mortgage are more than noteworthy, perhaps the biggest downside is for those still claiming the federal interest rate tax deduction because it makes them no longer qualified. If you are still claiming the federal interest rate tax deduction, you are no longer qualified.

Since the Tax Cuts and Jobs Act considerably increased the standard deduction in 2017, there are fewer people who itemize their deductions and so qualify for the mortgage interest tax deduction. The table below summarizes all the major pros and cons of an early mortgage payoff.

Potentially save you up to tens of thousands of dollars in interestTies up a significant portion of your liquid assets and net value in your property, making it potentially more difficult to access later
Frees up additional funds for retireesIt could potentially lead to missing out on higher returns coming from other investments
Provides a return that is predictable and equal to the interest rate on the sum you are paying offYou no longer qualify for federal interest rate tax deduction
Enables you to access the equity in your house if you ever need to raise moneyIf the market drops, you won’t earn as much from the property if you have to sell it quickly

How to Pay Off Your Loan Early

If you decide that paying your home loan early is the way to go, you should consider several approaches and choose the ones that best suit your situation. Here’s what you can do to get out of debt before the expected date:

  • As I’ve mentioned before, making biweekly payments is one of the best approaches if you don’t want to burden your budget significantly. On a yearly basis, paying your installments every two weeks will amount to an extra installment each year. This can significantly reduce your time for paying off the mortgage and save you a large chunk of money in interest.
  • If you can afford it, take a larger amount of money and make an extra annual payment. You can set aside some money each month to gather enough to have for an additional installment. Or you can pay a sum on top of each monthly payment.
  • Consider changing your mortgage to one that has a shorter term. Refinancing your 30-year loan to a 15-year one will result in a quicker mortgage payoff if the interest rate is lower. Considering that your payments are now spaced out over a shorter length of time, take into account that even with a reduced rate, you can end up paying more each month.

Alternative Approaches to Paying Mortgage Off Early

While it is possible to adopt one of these approaches and manage to pay off the debt early, some people aren’t able to manage it. There simply isn’t enough room in their budget to do so. So, how can you pay your home loan before the due date in a different way? It’s time to look at alternative ways to maximize your funds.

One of the options to make additional money is to start investing in the stock market. Once you get the hang of it, you can significantly raise your earning potential and direct these funds toward paying off your debt early. You can also redirect some of the money you’ve planned for paying off the loan toward your retirement savings or use them to build an emergency fund.

You can also contribute to an account where you’ll keep funds for your child’s further education. If you are an able negotiator, you can negotiate with your lender and reverse a reverse mortgage if you pay it off completely.

A woman showing a calculator to a man

Why Paying the Loan Early May Work for You

Before you make a final decision on whether or not to increase your monthly installments in any way to get rid of the debt as soon as possible, it’s important to consider your personal situation. Try to set short-term or long-term goals and view them from all sides.

But in the end, it’s not about the sum of money but rather what makes you feel good. Some people may be eager to get rid of debt because it makes them feel anxious and causes them unwanted stress. And additionally, it’s always good to have that extra cash on hand.