When you take out your mortgage, 30 years might seem like a long time away. Depending on how you treat your mortgage, you could pay it off in less time or, if you are like many people, you will take more than 30 years to pay off the mortgage. The amount of time it takes you to pay off your mortgage doesn't really depend on the term of the mortgage. It depends on what you choose to do.
Most mortgages come with a pre-determined length, called an amortization period. For example, if you take out a 30-year mortgage, the payments are set up so that the loan will be completely paid off after 30 years if you make your payment every month and don't do anything to change the loan. You can choose a loan with a shorter life, like a 15-year loan. In exchange for a higher monthly payment, you make fewer of them.
How Amortization Works
The principle underlying a mortgage is called amortization, which is another way of saying "spreading out over time." Every month, you pay off the interest that you owe and a little bit of principal. Since you pay off a little bit of principal, next month you owe a little bit less interest, which means that a little bit more of your payment gets to go to principal. This continues until your last payment which is almost all principal.
Making a 30-Year Mortgage Last Longer
When you take out a 30-year mortgage, you pay a lot of interest in the beginning and relatively little principal. With this in mind, refinancing your mortgage can be a major setback. In fact, over the first 10 years of the loan, you'll make 33 percent of the payments, but only pay back 21 percent of the balance. If you refinance, you'll end up not only restarting the clock for another 30 years, but you'll end up also making another 10 years where you pay almost all interest and relatively little principal. Some people who continually refinance can end up never paying off their mortgages.
Getting Out of Debt Quickly
You can also turn amortization around to your benefit by simply paying a little bit extra every month. If you have a $200,000 30-year mortgage at 4.5 percent, your monthly payment should be $1,013.37. If you round your payment up to $1,100 a month, which is roughly the cost of a latte-a-day coffee habit, you'll pay your mortgage off in roughly 25.5 years. Paying $1,300 a month will pay your loan off in slightly over 19 years.
Steve Lander has been a writer since 1996, with experience in the fields of financial services, real estate and technology. His work has appeared in trade publications such as the "Minnesota Real Estate Journal" and "Minnesota Multi-Housing Association Advocate." Lander holds a Bachelor of Arts in political science from Columbia University.