Does paying off house early save money?

[Zethos]

I am trying to understand my mortgage better in terms of interest and amortization.  

Lets say that I have a 20year loan for $100k, with a 5% interest rate.  I want to pay it off in 10 years, I have two options.

A) Make extra payments each month, equally an extra 10k per year or 

B) Put 10k per year into a savings account or money market, and at the end of 10 years, pay it all off in one chunk.

I know that each month I’m making a mortgage payment that includes principle, interest, taxes and insurance, so I wouldn’t actually need an entire 100k to pay off the mortgage early. 

But for the sake of simplicity, which option is preferable?  Do I save much/anything in interest if I choose A?  

Thanks for your help.

[bluevalentine78]

Unless your savings account is giving you more than 5% a year in interest, paying it off early with extra payments is going to keep the most money in your pocket long term

[StartingOver10]

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@Zethos wrote:

I am trying to understand my mortgage better in terms of interest and amortization.  

Lets say that I have a 20year loan for $100k, with a 5% interest rate.  I want to pay it off in 10 years, I have two options.

A) Make extra payments each month, equally an extra 10k per year or 

B) Put 10k per year into a savings account or money market, and at the end of 10 years, pay it all off in one chunk.

I know that each month I’m making a mortgage payment that includes principle, interest, taxes and insurance, so I wouldn’t actually need an entire 100k to pay off the mortgage early. 

But for the sake of simplicity, which option is preferable?  Do I save much/anything in interest if I choose A?  

Thanks for your help.

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^^^There is a little bit of confusion in this statement highlighted in red.  When you borrow $100k you have to pay back the entire $100k + interest.  The property taxes and homeowners insurance are typically in your monthly payment, but those payments are separate - they are put into your escrow account and paid when due to the tax authority and to the insurance co.  But those payments have nothing to do with your amortization schedule.

Go to Bankrate.com and pull up a mortgage calculator. Input your data and you can experiment with various early payoff scenarios to see how much you will save.  Yes, you save a significant amount by paying off a 20 year loan in 10 years.

[Zethos]

But what about the scenario of paying it off yearly, at a 10k increment.  Or all at once in 10 years.  Is that significant?  I can't seem to find anything that can help me figure that out.

[StartingOver10]

If you go to the bankrate.com mortgage calculator you can calculate it both ways for your specific mortgage and see what the savings are for each method

http://www.bankrate.com/calculators.aspx?ic_id=calc_mortgage_calculators_globalnav

I would think it would depend if you are paying the extra $10k at the "beginning" of the term or at the end of the term. 

[DallasLoanGuy]

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@bluevalentine78 wrote:

Unless your savings account is giving you more than 5% a year in interest, paying it off early with extra payments is going to keep the most money in your pocket long term

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i agree....

BUT!!!   then there is the human element. can you stick to the plan of saving the money?

we arent considering any tax implications.... you will have a bigger mortgage deduction for longer if you pay it off in one sum.