Should You Throw Extra Cash to Pay Off Your Mortgage Sooner?

Have you ever wondered how it would feel to get rid of your mortgage payment and own your house free and clear? My buddy Steve Stewart shared his experience with me. 

Last December he and his wife pulled the trigger and got rid of their last piece of debt. It's a win not only for their finances, but gives them some peace of mind. 

But what works for one family may or may not work for yours. How do you decide if it's worth getting rid of your mortgage sooner? 

Financial Priorities

Before we get into the math of mortgages, I want to mention that there a few steps you can take to shore up your finances. 

Taking care of credit card debt, which typically have much higher interest rates can not only be smart financially, but can free up your monthly cash flow. 

Those debts tend to snowball out of control so getting rid of them rather than later can boost your finances. 

Once you've got rid of those debts, having a good sized financial cushion is a wonderful goal, especially if you're buying a house. Even new places require some maintenance, so save first.

Should I Pay Off My Mortgage Early?

With those steps over, you can now breathe a little easier as you figure out if getting rid of your mortgage is the best move.

If you look at the numbers, you can save a significant amount of money by paying extra on your mortgage.  

How much?

Let's say you just got a $200,000 mortgage for 30 years at 4% interest rate. If you keep to the schedule, you'll be paying a total of $343,739.43 over the life of that loan. 

Now let's say you decided to pay just $100 extra each month. You not only pay your mortgage off about 5 years sooner, you'll pay $316,884.13. That's almost $27,000 less! 

If you do decide to pay down your mortgage, check with your lender and make sure they process your payments correctly. You want to make sure that money is going to principal and not towards next month's payment. 

Besides the financial benefits, you should also weigh the emotional ones. Some families have said that not having that mortgage payment over the heads made them feel less stressed and gave them peace of mind. 

Another Option - Invest More

As wonderful as it is to remove a huge weight of debt off your shoulder, there's another path you can take with your extra cash - contributing more towards your retirement accounts like a 401(k) or an IRA. 

While investing can have some volatility in the short term, if you look at historical returns, over the decades your money will build up more than with paying down a mortgage. 

The key is making sure that extra money gets invested. 

If you're worried you won't stick with the plan, setting up automatic contributions is fairly quick and easy. 

Your Thoughts on Paying the Mortgage Off Early

In the end, this is a case of personal finance being, well personal. You have to sit down and figure out what's best for you. 

There's no reason you can't do both and enjoy the benefits. Sure you may not pay the mortgage off as soon as you hoped, but you'll finish early and have a sizable nest egg. 

How about you - do you have any plans to pay your mortgage off early?