Q: I want to pay off mortgage early—is it a good idea to make an extra mortgage payment annually? And how much should I set aside each month to pay down a $300,000 mortgage in 10 years?
A: If you can afford to do it, yes, it is a good idea to pay extra toward your mortgage and pay your house off early.
The one caveat I would say, however, is to make sure that you’ve taken care of what I call “the financial basics” first. This means paying off excessive credit card debt, having at least a three month cash cushion set aside for emergencies, creating a will, and protecting yourself with both life and disability insurance.
Also, some kinds of mortgage will be easier and often quicker to pay off. If you have a debt consolidation mortgage, for instance, it may well be that this is quicker to pay off compared to having separate loans for your house and land. That’s just one example that may be appropriate for your situation.
Once those things are taken care of, by all means, start throwing extra money at your monthly house note to own your home free and clear as soon as possible.
Paying Down a $300,000 Mortgage
You asked about paying “down” a $300,000 mortgage, and I assume you meant just that – paying a big chunk of it down, and not paying it completely off.
If you acquired your home anywhere from 1 to 10 years ago, and got your standard 30-year mortgage, paying it off in just 10 more years would mean you’d likely have to nearly double your current payments.
On the other hand, if you’ve owned the home for some time, and want to accelerate your payments so that you can, indeed, have it paid off entirely in 10 years, then that may be financially doable without such a huge increase in payments.
One big variable in all this is also the interest rate on your home loan. Since I don’t know how any others facts outside of the payoff amount – $300,000 – and your desired time frame (10 years), I’ll briefly describe two payment options, and then point you in the right direction for further information, where you can run multiple scenarios based on your exact circumstances.
Mortgage Payments are Always Front-Loaded
According to Bankrate.com, to pay off in 10 years a $300,000, 6% home loan means your monthly payments would need to total $3,331. By comparison, a 30-year mortgage, also for $300,000 at 6%, would have payments of $1,799.
But remember, mortgage payments are very front-loaded, so that you pay more in interest charges in the early years, as opposed to paying down the principal on the loan. In fact, after 10 years of paying on a 30-year mortgage, you’re likely to have knocked off just 13% to 17% of your principal balance.
It typically takes about 17 to 19 years of paying a mortgage before your payments start being mostly applied to principal instead of interest.
Use Online Mortgage Calculator
Use this mortgage calculator on Bankrate.com. It will allow you to play around with different payoff scenarios for your mortgage. By doing so, you’ll see how many tens of thousands of dollars you can save by applying extra payments to your mortgage, and paying it off sooner rather than later.
FAQs
1. What is the best way to pay off a mortgage early?
The best way to pay off your mortgage early is to make extra payments toward the principal, either monthly or annually, while also ensuring your financial basics—like emergency savings and insurance—are in place.
2. How much extra should I pay monthly to pay off a $300,000 mortgage in 10 years?
To pay off a $300,000 mortgage in 10 years at 6% interest, you would need to pay around $3,331 per month. This is nearly double the standard 30-year mortgage payment.
3. Is making one extra mortgage payment a year effective?
Yes, making one extra payment per year can significantly reduce your loan term and save you thousands in interest over the life of the loan.
4. How does interest affect early mortgage payoff?
Mortgage interest is front-loaded, meaning you pay more interest in the early years. Paying extra early on reduces the principal faster, saving on long-term interest costs.
5. Can I use a mortgage calculator to plan early payoff?
Absolutely. Tools like Bankrate’s mortgage calculator let you simulate different scenarios to see how extra payments can shorten your loan term and reduce interest.
