Prepaying your mortgage is a great idea if you can afford to pay extra. Especially if you are going to be in your house long term, or forever. The best way to save money on debt is to not have it! But many people do not realize that prepaying a fixed rate loan does not reduce the monthly payment. Prepaying a loan simply shortens the term. So prepayment builds equity faster, and ends the loan sooner. You save money by having the loan for a lesser amount of time.
I won’t save money on a monthly basis
Most mortgages offer the ability to prepay principal early without penalty. Early payments of part of the principal will reduce the total cost of the loan and will shorten the amount of time needed to pay off the loan. But paying an extra $250 a month, or paying off a big hunk of the mortgage all at once, will not reduce the monthly payment on a fixed rate loan.
Adjustable Rate Mortgages might be different
However, on an ARM (adjustable rate mortgage) loan if you prepay some of the balance, when the interest rate adjusts the loan resets, and the new monthly payment is based on the most recent balance. But since it seems most ARM loans these days are 5 or 7 year ARMs, where the payment is fixed for many years, an interest rate change and reset may not occur at the same time as a principal pay down. And most loans it seems are fixed rate, especially with rates so low these days. Not many people are taking ARM loans now.
You can try different prepayment scenarios by using my Mortgage Payoff Calculator.
So please do pay down your loan if you can. I do. I have owned my home for 6 years, and started paying it off on a 20 year amortization instead of a 30 year right from the start. I only have 14 years left as a result! Now if I only had not bought at the height of the market….oh well.