Paying off your mortgage faster can save you thousands in interest and help you achieve financial freedom sooner. One strategy homeowners often consider is making extra mortgage payments. But how effective is this approach? Specifically, how many years can two extra mortgage payments take off your mortgage?
In this guide, we’ll explore the impact of extra payments on your mortgage balance and term. You’ll also discover useful strategies to pay off your mortgage early and decide if paying off your mortgage ahead of schedule is right for you.
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What is the average U.S. mortgage balance?
According to Experian, the average U.S. mortgage debt stands at $244,498. While other consumer debts, like credit cards and auto loans, have surged post-pandemic, mortgage balances have increased more steadily. This steady growth reflects a different trend in how homeowners manage their mortgage debt compared to other types of consumer debt.
Average mortgage debt, 2018-2023
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)
At HomeLight, our vision is a world where every real estate transaction is simple, certain, and satisfying. Therefore, we promote stricteditorial integrity in each of our posts.
Richard Haddad
Executive Editor
Richard Haddad is the executive editor of HomeLight.com. He works with an experienced content team that oversees the company’s blog featuring in-depth articles about the home buying and selling process, homeownership news, home care and design tips, and related real estate trends. Previously, he served as an editor and content producer for World Company, Gannett, and Western News & Info, where he also served as news director and director of internet operations.
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