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Paying off your mortgage sounds great—especially if you can pay it off early. You’ll have financial freedom, more room in your monthly budget and won’t owe more interest.
But there are lots of important considerations that go into the decision to pay off your mortgage, not to mention developing a strategy to get it done. Use this mortgage payoff calculator to determine whether it’s the right move for you.
How to Use This Mortgage Payoff Calculator
Before you start, you’ll need to gather some information. Make sure you already know or have the following handy:
- Original mortgage loan amount
- Current interest rate
- Original loan term (years your mortgage spans)
- Outstanding balance on your mortgage
- Number of years in which you’d like to pay off your mortgage, if applicable
- Years left on the original mortgage term
As you use the calculator, there are some mortgage terms that you might need to know.
- Years remaining: The number of years left on your mortgage term
- Original mortgage term: The length of your original mortgage in years (15-, 20- and 30- year terms are the most common)
- Remaining mortgage amount: The amount you first financed (includes interest, so don’t confuse it with the remaining principal balance)
- Annual interest rate: The simple interest rate on your loan that doesn’t include private mortgage insurance, the origination fee or point(s) paid at the beginning of the mortgage (this is why this rate is lower than your annual percentage rate (APR), which does include these fees)
- Current mortgage payment: The monthly payment, principal and interest, based on your original mortgage amount (doesn’t include current homeowners insurance or taxes)
Should I Pay Off My Mortgage Early?
The decision to pay off your mortgage early is a personal one. Doing so is probably the right move if you want to prioritize eliminating debt, reducing the amount of interest you pay or freeing up space in your monthly budget.
However, deciding to wait might be a better choice for you if you have concerns about your monthly cash flow now or in the future—say because the economy is shaky or you’re hoping to retire soon.
How to Pay Off Your Mortgage Early Using This Calculator
The calculator on this page helps you visualize different scenarios for making additional payments toward your mortgage. You can use it to determine how much more you’d need to pay if you want to hit a particular time goal—like paying off your mortgage in 10 years or by the time you retire.
Or if you have a specific amount of extra money to put toward your mortgage each month, you can use the calculator to see how quickly you’d pay off the debt with the increased payments. It can also break down what that means in terms of principal and interest, but it doesn’t take into account insurance and taxes.
More Ways to Pay Off Your Mortgage Early
Here are a few more creative strategies for paying off your mortgage early:
- Refinance to a shorter term. If you refinance into a mortgage that needs to be paid over a shorter period of time, you’ll pay it off sooner. You’ll pay more each month, but less interest over the life of the loan.
- Make extra principal payments. You can make an extra principal payment every month, once a year or whenever you’re able. Doing so will reduce the amount you owe and the interest on it. If you’re paying private mortgage insurance, it could help eliminate that liability, as well.
- Make bi-weekly payments. If your lender is agreeable, switch from paying your mortgage monthly to paying bi-weekly. This equates to one extra payment per year.
- Recast your mortgage. A mortgage recast involves applying a lump sum toward your principal and having the bank adjust your payoff schedule at a lower fee than refinancing.
Is There a Penalty For Paying Off My Mortgage Early?
You may have to pay a prepayment penalty if you pay off your mortgage within the first few years of the life of the loan. That amount can be hefty—often as much as 2% of the mortgage amount—enough to impact your calculations about early payoffs. The good news is that you can avoid the prepayment penalty by waiting until it no longer applies or, in some cases, talking directly with your lender about it.
Frequently Asked Questions (FAQs)
Pay off your mortgage or grow your wealth: Which is best?
The choice often comes down to whether you have retirement savings or not. The younger you are, the more you should focus on retirement savings.
Later on, when compound interest has grown your wealth, you could make extra payments toward your home loan principal to build more equity. Once you feel your retirement portfolio is in good shape, try to make extra mortgage payments early to reduce the principal you’re paying interest on.
What are the advantages and disadvantages of paying off my mortgage early?
Paying off your mortgage early can be a smart financial decision, but it’s not always the best route for everyone.
Pros of paying off your mortgage early
- You can save thousands or more on interest payments
- The money you once spent on your mortgage can be used to pay off other debt
- You can get rid of Private Mortgage Insurance (PMI) sooner
Cons of paying off your mortgage early
- You won’t have cash on hand to invest or build your emergency fund
- If your mortgage rate is low (3% or less), you won’t get as great of a return on investment as you might investing elsewhere
- You could lose your mortgage interest tax deduction, resulting in a bigger tax bill
Use a mortgage calculator to decide if the pros outweigh the cons, and get clear on your priorities before making the leap to early payoff.
What is a mortgage payoff statement?
Once you’re ready to pay off your mortgage, you’ll need to request a mortgage payoff statement from your servicer to make your final payment. The payoff statement is crucial because it will likely include some fees and interest calculations that you may not know about.
The payoff statement is good for a certain period of time, say 30 days, which will be specified in the statement. If you can’t make that deadline, it’s not the end of the world. It just means you’ll have to repeat the process when you are ready.
Aside from that, you should cancel any automatic payments on your mortgage, get a refund on your escrow, and let your insurance company and tax collector know you’ll be paying them directly (and make sure you save for these bills).
You might see a bump in your credit score after paying off your mortgage (if your credit is good, the boost will be negligible).
What documents should I keep after paying off my mortgage?
It’s a good idea to read up on the various documents you can expect to receive after paying off your mortgage. In general, you can expect to receive:
- Canceled promissory note (also simply known as a “note”), which your servicer may or may not provide
- Deed of trust or mortgage deed
- Certificate of satisfaction (for which you might pay a nominal fee)
- Final mortgage statement
- Loan payoff letter
You’ll definitely want to hang on to your deed, the certificate of satisfaction and the final mortgage statement.