The sooner you can contribute additional money along with your standard monthly repayments, the better. The average home loan can span anywhere from 25 to 30 years - this is a big commitment! It’s also a long time to be making repayments and incurring interest, which is why reducing the life of your home loan is a helpful way to save money.Īn easy way to make your money work for you is to put it towards your mortgage in additional and lump-sum payments. With the current monthly payment, it will take another 25 years to pay off your mortgage.Save on interest and reduce your loan term by making extra or lump sum payments The interest rate is 5.55%, and the monthly payment is $1,538.43. For example, after a few years of payment on your mortgage, you still have a mortgage balance of $250,000. Let's take a look at how much you can save by paying extra on a mortgage or loan. How much does paying extra on a mortgage save? For example, if you apply for a car loan for $20,000 with a 6-year term, you will pay off the loan in 6 years unless you make extra payments for the principal. When you take out a loan, the term of the loan is when you will pay off the loan. How long will it take to pay off my loan?

Other business or investment opportunities - Are there any other business or investment opportunities that you have that may give you a higher return rate than the interest you are paying on the loan? If there is, then you should use the money for that investment instead of paying the loan off.

If you don't have an emergency fund yet, you may need to think twice before paying off your loan.

Emergency fund - It is recommended that you have an emergency fund that can last you a year or longer.

Start paying off the debt with the highest interest rate before paying off the ones with low interest.

Other debt with higher interest - If you have a loan with low interest and you have other debt such as credit cards with high-interest rates, then you shouldn't pay off the loan.

Talk to your lender before paying off the remaining balance of your loan.

Prepayment penalties - There might be penalties for paying off your loan or home mortgage earlier.While paying off a loan early has many advantages, you will need to decide whether it is for you as there are also drawbacks. With a lower debt-to-income ratio, you expect to borrow more money on a mortgage at a more favorable interest rate. Lower debt-to-income ratio - If you are looking to apply for a mortgage to purchase a home, lenders will look at the debt-to-income ratio to determine whether you qualify.More money to spend - You will have more money to spend since you don't have to pay for the loan anymore.

Peace of mind - After you pay off the loan early, there is no need to remind yourself to make the monthly payment giving you peace of mind.The interest payment you save could go to your savings, investment, or retirement accounts.

Save money - When you pay off your loan, you no longer need to pay interest on the amount borrowed.Let's discuss the pros and cons of paying off a loan early. Depending on the loan amount, interest rate, and terms, paying off a loan earlier may save the borrower thousands of dollars in interest. The main reason that borrowers want to pay off their loans or home mortgages earlier is to save money on interest.

Loan payoff calculator extra payments