Paying down your mortgage early can feel like a huge weight off your shoulders. A home mortgage is one of the largest investments that most families will undertake, so making extra mortgage payments is a great way to save on interest payments and free up additional cash down the road. However, prepaying your mortgage is not without its drawbacks.

In any case, let’s take a closer look at everything you should consider before making extra mortgage payments.

How to Make Extra Mortgage Payments

First, it’s important to remember that there are numerous ways to pay off your home loan early. Here are a few of the most common methods:

• Make an additional payment per year – If you make one mortgage payment per month (as most people do), you can simply make 13 full payments per year instead of 12. This is an easy way to pay down your mortgage early when you have extra cash on hand.
• Make an additional payment per quarter – This is a bit more ambitious and requires a great deal of extra cash every few months, but it will also speed up the mortgage payment process by as much as 30%.
• Add a few extra dollars onto every payment – This is one of the most popular methods as it is very easy to fit into the budget. Even though it may not seem like much, adding a few dollars to every mortgage payment could shave months or even years off the length of your mortgage.
• Pay a lump sum all at once – If you happen to have a large sum of money via tax refund, inheritance, or some other source, you might consider putting it toward your mortgage. This will immediately decrease the interest you’ll pay over the life of the loan.

The Benefits of Paying Off Your Home Loan Early

Now that you know how to do it, let’s look at some of the ways you could benefit from paying off your home loan early:

• Decreases interest payments – Home loan interest rates are one of the primary drawbacks of taking out a mortgage. By making extra payments, you can end up saving thousands of dollars on interest over time.
• Decreases the life of your mortgage – Making extra payments ensures that your mortgage will end earlier than it would have originally. This means that you can start putting that money toward other investments once everything is paid off.

The Drawbacks of Paying Off Your Home Loan Early

• Decreases liquidity – Having cash on hand for emergencies is important. The more aggressive you are about making extra mortgage payments, the less cash you will have for other things.
• Takes away from investment opportunities – While paying down a home loan early will save you money on interest, there may be better ways to grow your wealth. For example, investing your money for retirement or paying down high-interest credit cards may save you more money in the long run.
• Puts strain on your monthly budget – If you find yourself with little extra cash once all of your monthly expenses are accounted for, making extra home loan payments may not be the best option for you.

Now that you have a better understanding of making extra mortgage payments, you can figure out if paying off your home loan early is the right strategy for you!