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Who prepays their mortgage and why?

If you have a mortgage, chances are you are counting down the months or years until your home loan will be paid off and you own your home free and clear.

Indeed, some homeowners are so eager to get rid of their mortgage that they pay extra money in order to rid themselves of their mortgage debt faster. This approach, known as prepaying, can help you build equity faster, save thousands on interest expense and help you become mortgage-free a lot sooner.

Most people decide to prepay with "some noble goal in mind," says Keith Gumbinger, vice president of HSH.com in Riverdale, N.J. For example, he says you can utilize a term prepayment calculator to determine how much extra you will need to pay each month to pay off your mortgage before you retire.

"Having no mortgage debt in your future is very helpful, and is also is a very interesting way to save money," Gumbinger says. "By prepaying, you aren't saving any money today, but you are chipping away" at what you'll owe in the future.

Prepayment survey

With that in mind, HSH.com recently surveyed homeowners from ages 18 to 64 to determine whether or not they planned to prepay their mortgage and why.

The nearly 800 respondents, comprised of an even number of males and females, were split evenly between those who said, yes, they planned to prepay and those who said, no, they didn't plan to prepay. The survey found that 52 percent of male respondents said they plan to prepay their mortgage compared to 48 percent of female respondents.

In terms of age, 30 percent of homeowners age 40 to 49 said they planned to prepay, the largest percentage of any age group.

The most common reasons for prepaying were to retire their loan sooner, to save on interest costs and to build equity faster.

Original term

Paying off the mortgage might take some time since 64 percent of the respondents said they originally obtained a 30-year loan. Twenty-six percent said their original term was either 15 or 20 years, and only 7 percent of respondents said their loan term was over 30 years.

Respondents aged 18 to 29 were more likely to have a loan with an original term of only 15 or 20 years, while respondents aged 50 to 64 were significantly more likely to have originally obtained a traditional 30-year loan.

Seventy-two percent of the women surveyed said they'd originally obtained a 30-year loan as had 55 percent of the men surveyed.

Should you prepay?

Prepaying takes more than good intentions. Rather, both discipline and time are also necessary, Gumbinger says.

"Borrowers get discouraged because the process is glacial," he says. "Your benefits are way off into the future. Your savings are way off into the future. You're going to need to make a commitment to it, and that's where most people fall over. They don't have the discipline to (pay more) over and over and over again for what could be many, many, many years."

For some homeowners, paying off their mortgage is a high priority. For others, it's barely a blip in their financial plan, says Ronit Rogoszinski, a financial planner and wealth advisor at Arch Financial Group on Long Island, N.Y.

"It's individual," Rogoszinski says. "Some people say, 'The faster I can be rid of the mortgage, the better I will sleep at night,' while others say, 'I have a 2.5 percent mortgage for the next 15 years, why rush it?' They are all focused on what's important to them."

Whether prepaying makes sense is "a good question to ask," though the answer always depends on your individual financial situation, Rogoszinski adds.

"You need to look at your total financial picture. Do you have a will? Do you have health insurance? Do you have life insurance? Are you funding your retirement plan? If there's a missing link that you've neglected, maybe that's the thing to do this year versus making that extra mortgage payment. If all the basics are done, then you need to start running the numbers to figure out what makes sense."

Gumbinger suggests running your numbers through a roundup prepayment calculator to give you a sense of the impact a few extra dollars each month can have on your overall interest expense.

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