The BEST Way To Determine Extra Mortgage Payments | NerdWallet

Owning your home free and clear sounds amazing, but is it a money move that makes sense? That's going to depend on your goals. Today, we'll tackle the question of should you pay off your mortgage? Depending on what angle you examine, the pros and cons of paying off your mortgage early are going to vary. For example, you might just say, you know what? I don't want this debt. And for many people, their mortgage is the largest debt that they have. However, also for a lot of folks, it's their least expensive debt. The interest rate on their mortgage is lower than the interest rate that they have on other debts. So if you have extra cash that you might be thinking to put toward paying down your mortgage, it may make sense to use it to pay down higher interest debt first. Some more food for thought. If you have a fixed rate mortgage, the amount that you're paying for housing is completely predictable. That can be a really good hedge against inflation. Even as the cost of living rises and interest rates go up, your housing cost is staying exactly the same. That can be a really good help if the cost of food, gas, and other things is rising. This is something that a large number of homeowners have actually experienced a lot of benefit from over the past couple of years as interest rates have really increased. The losers here, believe it or not, have been mortgage lenders because they're getting payments for the same amount of money. But because of inflation, those payments are worth less. Let's talk tax implications. If you pay off your mortgage, you're going to lose the mortgage interest deduction. Although right now you're only getting that if you itemize on your taxes. If you've owned your home for a long time, you've paid down your mortgage. You actually probably aren't paying that much in interest anyway because of amortization. So getting rid of that deduction might not be a big deal at all. And there are also times where there's just a change in your life and getting rid of your mortgage could be really beneficial to you to not have that bill to deal with, such as when you're retiring or if you're getting ready to begin paying college tuition. If that's the case for you, you probably want to talk to a certified financial planner or another professional so that you can understand how that would fit in your overall financial situation as well as the tax implications here, which can be complex, especially for retirees. Another big consideration, other housing expenses, just because you own your home free and clear doesn't mean that there aren't any costs associated with it. Big ones are going to include property taxes, homeowner's insurance. And if you live in a homeowner's association, you're still going to have HOA fees. You're also, of course, going to have to pay for any repairs or renovations, that kind of stuff, just as it comes up. It could be helpful to get a separate bank account so that you can just set aside funds over time a little bit each month, same as you did when you were paying your mortgage. And then that way, when those big bills come around once or twice a year, you're able to just take care of them. If you want to see what it would look like to get rid of your loan a bit faster, you can give NerdWallet's Early Mortgage Payoff Calculator a try. Simply enter basic details about your loan and how much sooner you'd like to have it paid off. It'll show you how much extra principal you'd have to pay each month in order to make that happen. If it's too much or too little, simply adjust the number of years up or down. You don't have to have the goal of paying off your entire mortgage to still speed things up a bit. After all, unless you've had a major windfall or a huge career change, you probably don't have hundreds of dollars laying around to spend every month toward your mortgage. That said, even paying a little bit extra toward principal every month can make a pretty big difference. I can actually use myself as an example here. I've had my mortgage for about three years, and every month I try to pay about 100 extra dollars toward my principal. That's already saved me almost $10,000 in interest, and it's shaved more than two and Now, most people sell their refinance way before their home loan reaches 30 years, but even if you don't keep your mortgage until maturity, paying down your principal can pay off because you're making your loan amount that much smaller, so you're paying less interest over the life of the loan, however long that life might end up being. Overall, paying off your mortgage is really a personal decision. If it fits with your goals, it might be the right money move for you. But if it's something where it's just more about the feeling of not having that debt and not so much about the sort of dollars and cents of how it would work, it might make more sense to hang onto that loan. Before you start an aggressive repayment campaign, make sure that the benefits will add up for you. You might realize that that extra cash that you were thinking of spending on paying down your mortgage could be better used elsewhere. And before you even think about ditching your mortgage, make sure you're covered on the basics. That means funding your retirement and making sure that you've got a sufficient emergency fund in the bank. And remember, you don't have to pay off your entire mortgage. If you just speed it up, you'll still get some benefits. Even though it's not the same as seeing it go to zero, watching the interest dwindle because you're paying down your principal a little bit at the time can be mighty satisfying too. I'm Kate Wood, and I write about mortgages and home buying for NerdWallet. If you found this video useful, like and subscribe for more.