Should you pay off your mortgage early? 1 in 4 homeowners make extra payments — here’s when it makes sense

Approximately one-quarter of homeowners are making additional payments towards their mortgage principal, according to Rocket Mortgage data spanning the past five years. This practice was most prevalent during the low-rate periods of 2021 and 2022. Adding even a modest extra payment, like $50 or $100 per month, can gradually shorten the time it takes to pay off the loan.

Mortgage interest rates are typically lower than those of other types of debt, such as credit card balances or personal loans, making mortgage repayment a potentially more cost-effective strategy. However, experts advise homeowners to consider their overall debt situation, as some may have higher-interest debts that should be addressed first.

While lower mortgage rates (below 4%) may seem appealing, financial experts recommend focusing on higher-interest debts. Homeowners with low mortgage rates might be better off addressing credit card debt first. Mortgage rates above 6% could offer greater financial benefits from extra payments. To accelerate mortgage repayment, homeowners can make additional principal payments, which are typically accepted through their mortgage platforms.

An amortization calculator can help estimate the impact of increased payments on the loan's payoff date and overall interest costs. For instance, on a $400,000 mortgage at a 3.5% interest rate with a $1,800 monthly principal and interest payment, adding $500 each month could potentially reduce the loan term from 30 to 20 years and save around $87,000 in interest.

Recasting a mortgage, which involves making a large one-time payment to lower the principal balance, may reduce monthly payments but does not necessarily shorten the loan term. Refinancing might be a viable option if a homeowner can secure a significantly lower interest rate, but the associated costs must be considered. Ultimately, the decision to pay off a mortgage early depends on the interest rate, overall financial situation, and the potential savings from accelerated repayment.