How many years does 2 extra mortgage payments take off?
Making two extra mortgage payments per year can significantly impact your mortgage term and overall interest paid. By spreading these extra payments throughout the year, you can reduce your loan term and save a substantial amount in interest.
To illustrate this, let’s consider a home purchase price of $350,000 with a 20% down payment, resulting in a mortgage loan amount of $280,000 at a 6% interest rate for a 30-year fixed mortgage.
The difference two extra mortgage payments can make
To simplify our example, we’ve taken the equivalent of two extra mortgage payments per year on a $280,000 loan and split it up into an extra $280 per month.
Monthly payment of $1,678.74 x 2 = $3,357.48 (rounded up to $3,360 per year)
$3,360 divided by 12 months = $280.00
| Original payment | With payoff payments | Difference/savings | |
| Monthly pay | $1,678.74 | $1,958.74 | +$280.00 monthly |
| Total payments | $604,346.93 | $492,626.22 | -$111,720.71 |
| Total interest | $324,346.93 | $212,626.22 | -$111,720.71 |
| Payoff in years | 30 years | 21 years | -9 years |
Source: Calculator.net Mortgage Payoff Calculator
By making an additional $280 per month, equivalent to two extra payments per year, you can reduce your mortgage term by nine years (30%) and save over $111,000 (34.4%) in total interest. This strategy not only shortens the duration of your mortgage but also significantly reduces the overall cost of your loan.
How your month-to-month payoff progress might look
To see how dramatically this strategy can reduce your principal balance and interest costs over time, below is a monthly amortization schedule for this example loan showing year 1 and years 20 and 21, when the loan balance is paid off early compared to a typical 30-year mortgage.
Should you pay off your mortgage early?
Paying off your mortgage early has its advantages and disadvantages. Here are some key pros and cons to consider:
Pros:
- Save on interest: Pay less interest over the life of the loan.
- Increase cash flow: Free up cash for other purchases or investments.
- Peace of mind: Gain peace of mind knowing your home is paid off.
- Financial transformation: Transform your financial outlook and mindset.
Cons:
- Tax benefits: You could lose out on a tax benefit for having a mortgage.
- Higher-interest debt: It may be wiser to channel extra income to higher-interest debt.
- Investment opportunities: You might benefit more by investing extra income.
- Home equity liquidity: It’s tough to withdraw equity from your home if you need it fast.
- Other priorities: You may need the extra funds for more pressing priorities.
- Prepayment penalties: Your loan servicer might charge a prepayment penalty.
Find the mortgage strategy that works for you
Choosing the right mortgage strategy plays a huge role in your overall financial health. Whether you decide to make extra payments to pay off your mortgage early or explore other options, it’s important to understand how it will impact your financial and family goals. It’s often best to consult with a professional advisor before making this decision.
For homeowners considering selling or refinancing, knowing your home’s current value can provide helpful insights. Use HomeLight’s free online home value estimator tool to get a preliminary estimate of your home’s worth.
Header Image Source: (kzlobastov/DepositPhotos)
