I’m aiming to pay off my mortgage within the next three years. It’s not about percentages or maximizing my income; I just want the peace of mind of having it paid off.
I calculated that adding a certain amount each month would allow me to reach this goal. However, I’m debating whether it’s better to save that amount and pay it off in one lump sum annually, just in case something unexpected comes up. I’m unsure if paying monthly against the principal is more effective. Does paying down the balance each month reduce the interest faster than an annual lump sum?
I realize some people would suggest putting the money in stocks or crypto to get a higher return, but honestly, I just want the mortgage gone.
> Does paying down the balance each month reduce the interest faster than an annual lump sum?
Yes, paying monthly does help because interest is only charged on the remaining balance. When you reduce the principal regularly, more of your monthly payment goes toward paying off the balance, which speeds up the timeline. Most payoff calculators assume you’re paying down the principal over time, not all at once.
If you can find a high-yield savings account or other low-risk options where you could earn more than your mortgage interest rate (after taxes), you’d technically come out ahead by saving instead of paying the mortgage down directly.
> I realize some people would suggest putting the money in stocks or crypto to get a higher return
But are you certain the return will beat your mortgage rate?
This really depends on timing and a few other factors. If you pay a larger amount at the start of the year, you’ll save on interest throughout the year. If you spread it out monthly, you’re still saving on interest, but it will be a little less.
On the other hand, do you have at least six months of emergency funds saved up? In other words, could you manage for six months without income if needed? If not, maybe focus on building that cushion first before paying extra on the mortgage.
While paying off the mortgage early sounds nice, remember it only reduces your principal and interest payments, which is just a part of your expenses. You’ll still need to cover property taxes and homeowner’s insurance, so consider whether the reduced monthly payment really makes a big enough difference.
If you’re feeling more comfortable, you could invest the extra money instead and then revisit the mortgage payoff goal in a few years. See if your investments have grown enough to make it worthwhile.
It’s wise to build up an emergency fund and have some investments that grow at a higher rate than your mortgage interest. Life can be unpredictable, and having these funds available can bring peace of mind. Once you have a good safety net and extra funds, then consider paying down the mortgage early.
@Fraser
Let’s assume I’m financially stable enough to make extra payments without any issues. In that case, is it still best to pay down the principal as fast as possible?
Kelby said: @Fraser
Let’s assume I’m financially stable enough to make extra payments without any issues. In that case, is it still best to pay down the principal as fast as possible?
I’m suggesting investing is better, but it’s really up to you. You’ll have to pay down the principal either way, whether you take the full loan term or your three-year plan. I’m just bringing up different points because I don’t know the details of your financial situation.
ETA: Yes, the faster you pay down the principal, the less interest you’ll end up paying over time.