Use a Mortgage Calculator to Figure Out When is it Right to Prepay a Mortgage?

The Mortgage Early Payoff Calculator helps you figure how much extra to pay each month if you decide to reduce your loan term.  Here are some things to consider whether this would be the right thing to do.

The idea of living in your home without having to pay a mortgage may sound heavenly, but the decision of whether to pay off your mortgage early isn't a no-brainer. The choice depends on your situation and your mindset.

Mortgage: When You Should Keep It

Mortgage debt, especially with today's low interest rates, is cheap, and it also provides a tax break. The rate of return on prepaying a mortgage is the mortgage interest rate. Unless your only investment alternatives are certificates of deposits and savings accounts, you can probably get more bang for your buck by investing the money in other vehicles such as mutual funds.

In addition, money put into your mortgage is hard to get back if you need it--you'd have to qualify and pay for a home equity loan. If you have extra cash, consider setting it aside for a rainy day. Most Americans don't have enough saved for emergencies. Or put the money toward retirement, especially if your company provides matching funds. A 2006 white paper for the Federal Reserve Bank of Chicago showed that 38% of US households that were prepaying their mortgages would have been better off putting that money in tax-deferred retirement accounts.

Consider this too: with inflation, a dollar you owe in 20 years will be worth less than the dollar you pay today.

Early Payoff: When Is it Right?

If you hate being in debt and the mortgage feels like a millstone around your neck, it might be worth paying off the home loan early just for the peace of mind it provides. Paying off a mortgage early also makes sense if you're approaching retirement and want to lower your fixed living expenses. You might also consider paying down extra principal so you can refinance more easily. Use a free mortgage refinance calculator to see how much you can save by refinancing to a lower mortgage rate. The calculator compares your existing mortgage against terms of a new loan.

Mortgage Early Payoff Calculator

If you want to pay off your mortgage early, a free Mortgage Early Payoff Calculator shows you how much to add to monthly payments to reduce your loan term. Just put in your original mortgage balance, original term and interest rate and the number of payments you've already made. Then choose when you want to pay off the loan, put in that new term, and the Early Payoff Calculator shows how much extra you need to pay each month.

Posted By :
Barbara Marquand is a freelance writer who writes frequently on mortgage and personal finance topics.

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