May 28, 2025
Are you considering paying off your FHA home loan early? How much do you know about the process, how it works, and how to go about it? There’s more than one way to pay off your FHA home loan ahead of schedule. Take our quiz to see how prepared you are to begin the process.
True or False: The primary motivation for homeowners to pay off their mortgage ahead of schedule is typically to qualify for a larger loan on a new property.
Answer: False.
While owning a home outright improves one’s financial standing, the most common primary motivations for early mortgage payoff are to save a significant amount of money on interest payments over the loan’s duration and to achieve the financial freedom of being debt-free sooner.
True or False: When sending extra money to your mortgage lender, it is generally unnecessary to specify that the additional amount should be applied directly to the loan principal.
Answer: False.
It is essential to clearly instruct your lender or mortgage servicer that any extra payment amount should be applied directly to reduce the principal balance only. Without such designation, the lender might apply it towards future interest, hold it in a suspense account, or treat it as a partial payment for the next month due.
True or False: In the initial years of a standard 30-year mortgage, the majority of each monthly payment is applied towards reducing the principal loan balance.
Answer: False.
Due to the way amortization is structured, in the early years of a typical long-term mortgage, a larger part of your mortgage payment is allocated to paying interest, with a smaller amount going towards reducing the principal. This allocation gradually shifts over the life of the loan.
True or False: Making additional payments directly to the principal of your mortgage has no effect on the total amount of interest you will pay over the loan’s term.
Answer: False.
Every extra payment applied directly to the mortgage principal reduces the outstanding loan balance. Since interest is calculated on this outstanding balance, reducing it faster means you will pay significantly less total interest over the life of the loan.
True or False: The “opportunity cost” associated with paying off a mortgage early refers to the additional fees lenders charge for processing extra payments.
Answer: False.
Opportunity cost refers to possible financial returns or benefits you give up by choosing to use your funds to pay down mortgage principal instead of investing that money in other avenues (like stocks, bonds, or retirement accounts) that might offer a higher rate of return than the interest rate on your mortgage.
We explore more early payoff topics in Part Two of this series.
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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