⚡ Early Mortgage Payoff Calculator

It depends on your mortgage rate and investment opportunities:

Pay off mortgage if:

• Rate above 6%: Guaranteed return beats most investments
• Near retirement: Peace of mind being debt-free
• Risk-averse: Hate debt and want security
• No emergency fund: Build 6-month fund first, then pay mortgage

Invest instead if:

• Rate under 4%: Stock market averages 10% long-term
• Get 401(k) match: Always take free money first
• High earner: Tax benefits of mortgage deduction valuable
• Young: Long time horizon for compound growth

Do both (split 50/50) if:

• Rate 4-6%: Reasonable middle ground
• Want balance of security and growth
• Maxing 401(k) match already

Example at 7% mortgage rate:

$500/month extra payment saves $145,000 interest over 30 years

$500/month invested at 10% = $1,000,000 in 30 years

BUT: Investment has risk, taxes, fees. Mortgage payoff is guaranteed after-tax return.

Smart approach:

1. Max 401(k) match (free money)
2. Emergency fund (6 months)
3. Then choose: pay mortgage or invest more

Start with what's comfortable - even small amounts make huge differences:

$320K loan at 7% for 30 years:

Extra $50/month:

• Saves: $22,400 in interest
• Payoff: 2.5 years early
• Total cost: $18,000 extra paid
• ROI: Saved $22K by spending $18K

Extra $100/month:

• Saves: $42,100 in interest
• Payoff: 4.5 years early
• Total cost: $36,000 extra paid

Extra $200/month:

• Saves: $75,800 in interest
• Payoff: 7.5 years early
• Total cost: $72,000 extra paid

Extra $500/month:

• Saves: $145,000 in interest
• Payoff: 13 years early (17 year mortgage!)
• Total cost: $180,000 extra paid

How to decide your amount:

1. Budget test: Can you afford it if income drops?
2. Opportunity cost: What else could money do?
3. Flexibility: Start small, increase annually
4. Windfalls: Bonuses, tax refunds = one-time extra payments

Smart strategy:

• Start with $100/month
• Add $50 each year with raises
• Apply bonuses/tax refunds as lump sums
• Reassess annually

Paying extra on 30-year is usually smarter - here's why:

$320K loan comparison:

Option A: 30-year at 7% + $500/mo extra

• Required payment: $2,129/mo
• With extra: $2,629/mo
• Payoff time: 17 years
• Total interest: $193,000
• Flexibility: Can skip extra payments if needed

Option B: Refinance to 15-year at 6.5%

• Required payment: $2,788/mo
• Payoff time: 15 years
• Total interest: $181,840
• Refinance costs: $8,000
• Locked in: Must pay $2,788 every month

Why 30-year + extra wins:

1. Flexibility: Can reduce/stop extra payments if job loss, emergency, etc.
2. No refi costs: Save $8,000 in fees
3. Lower minimum: Required payment $659/month less
4. Same result: Pay off in 17 years if consistent

When 15-year refi makes sense:

• Rates dropped 1%+ since you bought
• You NEED forced discipline (can't trust yourself to pay extra)
• Income very stable and high
• Like the psychological "lock-in"

Best of both worlds:

Keep 30-year, set up automatic $500 extra payment. You get flexibility with forced consistency.

Monthly extra payments save more - but both work great!

$320K loan at 7%:

Strategy A: $200/month extra every month

• Total extra per year: $2,400
• Interest saved: $75,800
• Time saved: 7.5 years

Strategy B: $2,400 lump sum once per year

• Total extra per year: $2,400
• Interest saved: $71,200
• Time saved: 7 years

Monthly wins by $4,600 because:

• Interest calculated daily
• Earlier payments reduce principal faster
• Compound effect throughout year

But lump sum has advantages:

1. Easier to execute: One payment vs 12
2. Great for windfalls: Tax refund, bonus, inheritance
3. Psychological win: See big principal drop at once
4. Still saves huge money: 95% as effective as monthly

Best approach - combine both:

• Monthly: Auto-pay $100-200 extra
• Annual: Apply tax refund/bonus as lump sum
• Example: $200/mo + $3,000 annual = Save $95,000 interest!

Lump sum strategy tips:

• Make payment early in year for maximum impact
• Specify "apply to principal only"
• Get written confirmation from lender
• Check loan balance reduced correctly

Don't pay extra if you have these situations:

1. No emergency fund

• Need 6 months expenses saved first
• Can't access home equity in emergency easily
• Foreclosure risk if you can't make payments

2. High-interest debt exists

• Credit cards (15-25%): Pay these first!
• Personal loans (10-15%): Tackle before mortgage
• Auto loans (8%+): Consider paying off
• Student loans: Depends on rate

Example: $5,000 extra money

• Option A: Pay mortgage (7%) = Save $35,000 over life of loan
• Option B: Pay credit card (20%) = Save $10,000 in 3 years
• Pay credit card first = Better ROI short-term

3. Not maxing 401(k) match

• Employer match = 100% instant return
• Max this before ANY extra mortgage payments
• Literally free money

4. Very low mortgage rate (under 4%)

• Inflation often higher than rate
• Effectively paying back with cheaper dollars
• Investing likely better long-term

5. Need liquidity/flexibility

• Job instability
• Starting business soon
• Planning major purchase (car, education)
• Health concerns

6. Tax benefits still valuable

• High earner (35%+ tax bracket)
• Itemizing deductions
• Large mortgage interest deduction
• Living in high-tax state

7. Investment opportunities

• Real estate deals with high returns
• Business opportunities
• Education/certifications that boost income

Priority order for extra money:

1. Emergency fund (6 months)
2. 401(k) match
3. High-interest debt (>8%)
4. HSA max (if eligible)
5. Roth IRA
6. Then choose: extra mortgage vs more investing

Critical: You MUST specify "principal only" or it won't work!

How to do it right:

Online payment:

1. Look for "additional principal" field
2. Enter extra amount there (NOT in regular payment field)
3. Screenshot confirmation
4. Verify on next statement

Check payment:

1. Write two separate checks:
   • Check 1: Regular payment amount
   • Check 2: Extra principal (write "PRINCIPAL ONLY" in memo)
2. Or one check for total, with note: "Apply $XXX to principal"

Auto-pay:

1. Call lender to set up
2. Confirm in writing
3. Monitor first 3 months to ensure applied correctly

What happens if you don't specify:

• Lender applies to next month's payment
• Doesn't reduce principal
• Doesn't save interest
• Wastes your extra payment!

Example of wrong vs right:

Wrong way:

• Regular payment: $2,129
• Send $2,329 with no note
• Lender applies $200 to next month
• Your principal doesn't drop

Right way:

• Regular payment: $2,129
• Extra principal: $200 (specified)
• Principal drops by $200 immediately
• Save interest on that $200 for life of loan

Verification checklist:

1. Check next monthly statement
2. Principal should drop by (regular principal + extra)
3. If not, call lender immediately
4. Get it corrected retroactively
5. Get written confirmation

Pro tip: Some lenders make this hard on purpose. If yours doesn't have easy "principal only" option, consider refinancing to a lender that does.