The most common amount of time, or “mortgage term,” is 30 years in the U.S., but some mortgage terms can be as short as 10 years. Most people with a 30-year mortgage won't keep the original loan for 30 years. In fact, the average mortgage length is under 10 years.
Homeowners typically make their normal monthly mortgage payments and expect to pay off their homes over 30 years. However, there are ways to pay it off even faster using three proven strategies.
The average period for repayment of a mortgage is 25 years.
Assuming principal and interest only, the monthly payment on a $100,000 loan with an APR of 6% would be $843.86 on a 30-year term and $599.55 on a 15-year one.
Depending on your income, you can shorten the life of your loan by over-paying your monthly mortgage. To some borrowers, life gets in the way and unexpected expenses or drops in income leave less room in their budgets for housing. The 30 year loan rate is meant to fall back on when or if you can't prepay.
You decide to increase your monthly payment by $1,000. With that additional principal payment every month, you could pay off your home nearly 16 years faster and save almost $156,000 in interest.
The additional amount will reduce the principal on your mortgage, as well as the total amount of interest you will pay, and the number of payments.
Making extra payments of $500/month could save you $60,798 in interest over the life of the loan.
Even one or two extra mortgage payments a year can help you make a much larger dent in your mortgage debt. This not only means you'll get rid of your mortgage faster; it also means you'll get rid of your mortgage more cheaply. A shorter loan = fewer payments = fewer interest fees.
As far as the simple math goes, a $200,000 home loan at a 7% interest rate on a 30-year term will give you a $1,330.60 monthly payment. That $200K monthly mortgage payment includes the principal and interest.
You might want to pay off your mortgage early if …
You want to save on interest payments: Depending on a home loan's size, interest rate, and term, the interest can cost hundreds of thousands of dollars over the long haul. Paying off your mortgage early frees up that future money for other uses.
Usually the maximum age at the end of the mortgage term should be 70 or your retirement age – whichever is sooner. If you'll be older than this, we'll still consider your application but you'll need to provide us with proof that you'll be able to repay your mortgage when it extends into your retirement.
Other types of debt—personal loans, credit cards, and auto loans, for example—tend to have higher interest rates and lack any potential tax benefits. These kinds of debt should "retire" before you do, because they can eat into your savings and reduce your standard of living.
After you make your final mortgage payment, your loan servicer typically sends you a packet of papers, known as the mortgage release or mortgage satisfaction document, attesting to the fulfillment of your loan contract and the removal of the lender's lien on your house.
Monthly payments for a $400,000 mortgage
On a $400,000 mortgage with an interest rate of 6%, your monthly payment would be $2,398 for a 30-year loan and $3,375 for a 15-year one.
On a $300,000 mortgage with a 6% APR, you'd pay $2,531.57 per month on a 15-year loan and $1,798.65 on a 30-year loan, not including escrow. Escrow costs vary depending on your home's location, insurer, and other details.
If you pay $100 extra each month towards principal, you can cut your loan term by more than 4.5 years and reduce the interest paid by more than $26,500. If you pay $200 extra a month towards principal, you can cut your loan term by more than 8 years and reduce the interest paid by more than $44,000.
Since your interest is calculated on your remaining loan balance, making additional principal payments every month will significantly reduce your interest payments over the life of the loan. By paying more principal each month, you incrementally lower the principal balance and interest charged on it.
Options to pay off your mortgage faster include:
Bi-weekly payments instead of monthly payments. Making one additional monthly payment each year. Refinance with a shorter-term mortgage.
Before paying off a loan ahead of schedule, it's important to read the fine print. Based on the terms of your loan, you could be subject to a prepayment penalty for paying off your mortgage early. Typically, loans older than three years are not subject to this type of penalty.
the extra $500 goes towards the principle only and the loan. Gets paid down much faster, your saving a lot of money over the years in interest. Talk to your lender and he will tell u how much you will save and how much faster the loan will be paid off. It is a good thing to do if you can.
Ideally, you want your extra payments to go towards the principal amount. However, many lenders will apply the extra payments to any interest accrued since your last payment and then apply anything left over to the principal amount. Other times, lenders may apply extra funds to next month's payment.