Paying Off Your Mortgage Early Can Save You Money, But Is It Worth The Effort?

When you've taken out a mortgage you have made a very long-term commitment. For the next 30 years, in most cases, you have just signed on the dotted line at a mortgage closing and you must make timely payments each month for a long time or risk losing everything! So, is it worth it to try to pay off a mortgage early and make this long-term commitment a little shorter? This article examines this question.

There was a time paying off the mortgage as soon as you could was the only way to go. This, of course, is provided the family had enough extra income to make extra mortgage payments. Why was making extra payments such a smart move? Because interest is what you pay for the time the lender is loaning you money. If you don't use this time, you do not pay interest.

I remember a time when an 11% interest rate was an excellent deal for the buyer. The reason why it was such an excellent deal is because in previous years interest rates were as high as 18%! At this rate, hardly anyone could afford to take out a mortgage. However, at 11% the mortgage payments weren't quite so bad. A $200,000 mortgage at 11% for 30 years requires a monthly payment of a little more than $1,900. However, most of the payment in the early years of the mortgage goes toward the interest on the loan. In this example, $1,833.33 of the first payment of the mortgage went to interest. Just $71.32 was paid toward the principal.

So, if the person who was paying this mortgage were to pay another $71.32 with his first payment, he would have paid off another whole payment without ever having to pay the interest on this payment. In other words, paying an extra $71.32 would save him $1,833.33. Of course, as time goes on the percentage paid toward interest becomes less and the part applied to principal becomes more. Still, on the 48th payment, less than $110 of this mortgage would go toward principal. So, adding another $110 to this payment would pay the 49th payment.

As you can see, you can pay quite a bit of your mortgage off just by adding small extra payments monthly. That is, you could do so back when interest rates were high. Now, fortunately, interest rates are low. Therefore, a 30 year mortgage may only require paying 4.5% interest. With this being the case, a 30 year mortgage for $200,000 would require a monthly payment of $1,013.37. Even so, the interest part of the first payment would be $750.00. So, paying an extra payment at this point in the mortgage would require making a principal payment. This would be $263.37.

This is a savings of approxiemtalely75% and n my opinion, it is a outstanding deal! If you were to buy a new refrigerator, for instance, and you could save 75% on it, you would probably feel like it was a terrific buy. To me, it is the same with a mortgage payment. When you can save 75% on one, it is a terrific buy, too!