A viral video on the social media platform TikTok claims there is a way for homeowners to pay hundreds of thousands of dollars less in interest on their mortgage.
In the 39-second video, a father said they were able to pay off their mortgage faster after making "one additional monthly payment" on a 30-year term. He further noted that an extra payment can cut the loan's duration to 17 years.
"During the year, if you make one additional monthly payment somewhere along the line - it can be one big payment or 12 small payments - but if you make an extra payment every year, that comes straight off the principal, not the interest," he said.
What Experts Say
In response to the viral video, experts said making additional payments would not reduce the mortgage by 13 years. However, it can save homeowners tens of thousands of dollars. That said, it depends on the interest rate, Adrianna Adams, head of financial planning at Domain Money, told Market Watch.
READ MORE: 5 Key Things That Affect Mortgage Interest Rates
Homeowners with 30-year terms who secured rates closer to 6.5% are likely to shave five to six years off their loan if they make one additional payment. In numbers, a homeowner who purchased a $412,300 home with a 20% down payment would likely be able to save as much as $94,995 in total interest if they made one extra payment of $2,209.
To shave off 13 years from the loan at an interest rate of 6.5%, a homeowner would have to pay an additional $7,100 annually.
@firsthousefinancing A Dad's advice to teach his daughter how to pay off her house faster #dad #dadsoftiktok #father #fatherdaughter #fathersday #houseoftiktok #house #home ♬ original sound - LaurenTheLender
Is It Worth Paying Off Mortgage Early?
Making additional payments can cut down your loan. However, using a large sum of money for the extra payments will reduce your liquid assets, leaving you with less money available for emergencies.
Additionally, mortgage interest is typically tax-deductible. However, paying it off early can result in you losing out on federal mortgage interest tax deductions. This, in turn, would just increase your tax liability.
Furthermore, paying your mortgage off early may result in you incurring penalties. Some mortgages have prepayment penalties, particularly fixed-rate or discounted mortgages.
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