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What is the best way to pay off your mortgage?

STILLWATER, Okla. – With historically low mortgage rates starting to creep back up, many homeowners are asking themselves if it is a better idea to refinance or simply pay more toward the mortgage they already have. Or is there a better option?

For most people, buying a home is the single largest purchase they will make. Depending on what your goals are will depend on how you should approach paying off your mortgage.

Sissy Osteen, Oklahoma State University Cooperative Extension resource manage specialist, said paying off your mortgage does not have a one-size-fits-all answer.

“If your goal is to simply pay off the mortgage as quickly as possible, refinancing to a shorter-term loan makes a lot of sense. Typically a 15-year note carries a lower interest rate than the standard 30-year note,” Osteen said. “Over the course of a mortgage, a lower interest rate can save homeowners thousands of dollars.”

However, keep in mind a shorter-term mortgage will likely result in higher monthly payments. Refinancing to a shorter-term loan is a great solution for homeowners with stable incomes and who are willing to commit to a higher monthly payment.

“Remember there’s always the possibility of income change, job loss or even a medical crisis that can deeply impact your ability to pay that higher mortgage,” she said. "In cases where consumers feel unsure about being able to maintain a higher payment, they can refinance to a lower rate and make higher payments to shorten the term. That way if the unexpected occurs they can go back to making the minimum payment for a period of time until things return to normal."

While refinancing may look really good on paper, it may not be the answer for all homeowners. Another option is to simply pay extra payments on the mortgage.

Osteen said making extra payments is a good option for those who may not be able to afford the closing costs that come with refinancing. Closing costs typically range from 3 percent to 6 percent of the total amount of the loan, which can add up to several thousand dollars.

"Making extra principal payments instead of refinancing gives homeowners the flexibility to pay extra when they have the means to do so,” she said. “You’re not locked into a set higher payment. During times such as the holidays or an unexpected expense arises, you’ll still be able to make the regular mortgage payment you always have made.”

Adding even $50 per month can make a drastic difference in your mortgage and cut two or more years off the life of the loan. In addition, homeowners will save thousands in interest charges.

 “Another idea for homeowners is to invest the money they would be using to pay extra on their mortgage,” Osteen said. “Depending on the investment, you’re likely to gain a greater return than your mortgage interest. This is a great option for those who are interested in the investment market. But everyone needs to keep their individual situations in mind and determine what works best for them, their family and their budget.”


 Oklahoma State University, U.S. Department of Agriculture, State and Local Governments Cooperating: The Oklahoma Cooperative Extension Service offers its programs to all eligible persons regardless of race, color, national origin, religion, gender, age, disability, or status as a veteran, and is an equal opportunity employer.

Trisha Gedon
Communications Specialist
Agricultural Communications Services
136 Agriculture North
Stillwater, OK  74078
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405-744-5739 (fax)

Oklahoma State University - Stillwater, OK 74078