Take Advantage of San Diego's Low Mortgage Rates
You may be able to pay your loan off faster and save thousands in interest expenses by refinancing into a fixed-rate mortgage with a shorter duration.
Check out San Diego's best mortgage rates to see how much you could save.
Calculator Usage Instructions
Want to pay off your home loan quicker?
- Enter how many years you'd like to pay off your loan in, what your current outstanding balance is, and the loan's APR, then enter the principal & interest (P&I) portion of your current monthly loan payment.
- We will tell you how much extra you need to add to each monthly payment to pay off your loan in the number of years you specified.
- We'll also calculate your interest savings generated by paying off your loan faster.
- If you enter your current monthly loan payment with other fees included (such as property taxes, homeowners insurance & anything else you may have rolled into your monthly payments) we'll also calculate the new monthly payment inclusive of the other costs of homeownership.
Mortgage Payoff Goal Calculator
Current San Diego 30-YR Fixed Mortgage Rates
The following table highlights current San Diego mortgage rates. By default 30-year purchase loans are displayed. Clicking on the refinance button switches loans to refinance. Other loan adjustment options including price, down payment, home location, credit score, term & ARM options are available for selection in the filters area at the top of the table.
Employing Attainable Mortgage Payoff Goals
American homebuyers spend around 31% to 36% of their monthly income on mortgage alone. It’s one the longest and most costly debt obligations people pay in their lifetime. While home loans are a worthwhile investment, they also curtail much of your cash flow. This limits your spending power, which leaves less room for other important expenses and profitable investments. And the longer you pay for your mortgage (or any extended debts), the more it keeps you from building emergency funds and retirement savings.
Since most mortgages last for three decades, many homebuyers pay for it until their senior years. It’s a long time, so people may delay retirement just to pay it off. But if you don’t want your mortgage to drag that long, you can definitely make achievable plans to pay your mortgage early.
Our article will discuss the benefits and drawbacks of early mortgage repayment, and different methods you can employ to shorten your term. We’ll also explain prepayment penalty and why you should avoid this extra charge. Whether you choose to make extra monthly payments or make a lump sum contribution, we hope these strategies will help you better manage your finances.
The Prevalence of Long Mortgage Terms
30-year fixed rate mortgages are the most widely purchased mortgage product in the U.S. It’s become a cornerstone in the housing market, accounting for 74.2% of all new originations as of October 2020, according to the Urban Institute December 2020 Housing Finance at a Glance. In second place were 15-year fixed-rate loans, which comprised 16.9% of mortgages in October 2020. That’s a significantly smaller fraction of the market, with most 15-year terms taken as refinances instead of new home purchases.
While shorter terms are available, 30-year fixed-rate mortgages (FRM) remain the most popular choice among homebuyers. This is primarily because they come with more affordable monthly payments. It also allows borrowers to qualify for a larger loan amount. This gives homebuyers the option to purchase more expensive homes that are larger and located at better neighborhoods.
For example, you may qualify for a $360,000 home with a 20% down payment if you take a 30-year FRM. This is a viable deal, especially if you’re looking to purchase a bigger home for your growing family. However, with a 15-year FRM, you might only qualify for a $280,000 loan. In this scenario, people typically choose the 30-year term to afford the home they want. Moreover, a 30-year FRM is your most practical option while you’re still building income. When you’re starting out, an extended mortgage doesn’t seem so bad. The affordable monthly payments give enough room in your budget for other important expenses.
The Drawbacks of 30-year FRMs
30-year fixed-rate mortgages are more beneficial to lenders than homebuyers. If you think you’re saving with lower monthly payments, you’ve been misinformed. Compared to 15-year or 10-year terms, you’ll end up paying tens and thousands of dollars more on interest with a longer term. 30-year FRMs also have the highest market rates, which is around 0.25% to 1% higher than 15-year FRMs.
To understand how different payment terms affect the cost of your mortgage, let’s review an example. Assuming you have a $240,000 mortgage with 20% down on each loan, the following table compares average mortgage rates for different terms. It also compares their corresponding monthly principal and interest payment (P&I), and total interest costs. The calculation does not include property taxes, homeowner’s insurance, and other escrow costs.
Loan Amount: $240,000
|Loan Term||30-YR FRM||20-YR FRM||15-YR FRM||10-YR FRM|
|Monthly P&I Payment||$997.67||$1,304.76||$1,585.65||$2,241.80|
|Total Interest Costs||$119,160.21||$73,141.95||$45,416.74||$29,016.17|
Notice how the rate gets lower as the term gets shorter. The 30-year FRM has the highest rate at 2.89% APR, while the 10-year FRM has the lowest rate at 2.31% APR. Longer terms have higher rates because they impose more duration risk on lenders. Note that money paid sooner has more value than money paid in the future, which loses value over time due to inflation.
Next, the 30-year FRM has the cheapest monthly principal and interest payment. However, it also has the highest rate at 2.89%, and the largest total interest cost at $119,160.21. As the term gets shorter, total interest charges get smaller. Though your monthly payments are higher, you spend considerably less on overall interest costs with a shorter term.
On the downside, your monthly principal and interest payment is higher by $587.98 with a 15-year FRM, and more expensive by $1,244 with a 10-year FRM. However, compared to a 30-year FRM, you’ll save a $73,743.47 on interest costs with a 15-year FRM. And if you choose a 10-year FRM, you’ll save $90,144.04 on overall interest costs.
Thus, interest charges on longer terms eat away your cash flow. That’s money you could save for other important purposes, such as your retirement funds, emergency savings, or your child’s college education.
But of course, not everyone can afford a short mortgage term from the get-go. If you have a 30-year FRM, there are other ways to boost your interest savings and pay off your loan sooner. This involves making extra mortgage payments, specifically toward your principal. Even a modest $50 a month on top of your monthly payments have a significant effect on your savings. But if you want to reach a shorter payoff goal, prepare to make higher extra payments.
Determining Your Payoff Goal
To plan your payoff goal, you should estimate the additional payment amount you need each month. Use the above calculator to enter your current remaining balance, rate, and monthly principal and interest payment. Then, enter your loan pay off goal in years. For example, instead of the current 28 years, you want to pay your mortgage in 20 years. The calculator will determine the extra amount you need to pay each month.
Here’s an example. Let’s say your current mortgage balance is $260,000 at 4.2% APR, with a principal and interest payment of $1,350 per month. You have a remaining term of 26 years and 9 months on your mortgage. If your goal is to pay off your mortgage in 20 years, how much additional payment should you make each month? See the results below.
Current Remaining Balance: $260,000
Rate (APR): 4.2%
Monthly P&I Payment: $1,350
Current remaining payments: 321 (26 years 9 months)
|Additional Monthly Payment Required||$253.08|
|New Monthly P&I Payment||$1,603.08|
|Total Interest Savings||$48,434.97|
To reach your payoff goal of 20 years instead of the current 26 years and 9 months, you need to pay an extra $253.08 each month. This will increase your monthly principal and interest payment to $1,603.08. Paying your mortgage in 20 years will also reduce your interest costs from $173,175.11 down to $124,740.14, which saves you a total of $48,434.97 in interest charges.
When planning your payoff goal, make sure you have enough room in your budget to afford the additional monthly payment. Adjust your goal as needed if the extra payment is too high, or if you have ample income to contribute higher additional payments.
Beware of Prepayment Penalty
Before you make extra payments, ask your lender about prepayment penalty. This costly fee can diminish any savings you make from extra payments. Since lenders profit from interest, they discourage borrowers from selling, refinancing, and paying their loan early. But depending on your lender, they may allow you to prepay up to a certain percentage of your principal before triggering the penalty. To be safe, you can wait for the penalty period to end before applying extra payments.
Prepayment penalty typically lasts for the first three years of a mortgage. If your mortgage originated before January 10, 2014, this rule is not retroactive. You may have a longer prepayment penalty clause, so be sure to talk to your loan officer. But if you’re about to secure a mortgage, you can ask for a deal without the prepayment penalty rule. You can also obtain government-backed mortgages such as FHA loans, VA loans, and USDA loans that do not charge prepayment penalty fees.
Effective Strategies for Early Mortgage Payoff
Making extra mortgage payments have the most impact when done early into the term. This is why prepayment penalty is imposed during the first couple of years. When you take a mortgage, your principal or loan amount is the largest during the first years. This generates the biggest interest, with more of your payments going toward interest instead of your principal. However, by making additional payments, you reduce your principal faster. As the principal decreases, so does the amount of interest your loan accrues. This results in lower interest charges, which removes several years off a 30-year FRM.
Compared to choosing a shorter term, extra payments are also more flexible. It allows you to contribute whatever amount you can toward your principal, with more room in your budget to adjust extra payments. But with a 15-year FRM, you risk defaulting on your loan if you fall short on payments. When you get a shorter term, you must commit to a more expensive monthly payment. This can be problematic if your budget is tight, especially if you need sudden car repairs or a medical emergency.
Extra Monthly Payments
If you can’t afford a shorter term, make regular extra payments on your 30-year FRM. To understand how extra monthly payments impact your mortgage, here’s an example.
Suppose you took a 30-year FRM at 3.5% APR. The home’s price was $300,000 and you made 20% down worth $60,000. Here’s how much you’ll save if you make extra payments beginning on the third year of your mortgage.
30-Year Fixed-Rate Mortgage
Home Price: $300,000
Down Payment: $60,000
Loan Amount: $240,000
Rate (APR): 3.5%
|Mortgage Details||Original Payment||Extra $50 / month||Extra $100 / month||Extra $300 / month|
|Monthly P&I Payment||$1,216.04||$1,266.04||$1,316.04||$1,516.04|
|Pay-off Time||30 years||27 years 11 months||26 years 2 months||21 years 1 month|
|Time Saved||0||3 years 1 month||4 years 10 months||9 years 11 months|
|Total Interest Costs||$197,776.11||$182,520.27||$169,840.73||$134,862.37|
By adding $50 on your monthly payments on the third year of the loan, you cut 3 years and 1 month from your original term. You’ll also save $15,255.85 on interest savings. Meanwhile, if you add $100 every month, you’ll cut 4 years and 10 months off your original term. This will save you $27,935.38 on interest costs. And if you can afford an extra $300 each month, you’ll cut 9 years and 11 months off your current term. You’ll also save a total of $62,913.74 on interest charges.
In this scenario, if your goal is to remove 9 years and 11 months off your term, you must make an extra payment of $300 on your mortgage. But if you can only afford a smaller amount, such as $100 per month, you can still pay your loan early by 4 years and 10 months. Even a small extra payment will help you save.
Aside from extra monthly payments, there are other strategies you can employ to reach your early payoff goal. You can try a bi-weekly payment schedule, a large lump-sum contribution, or make an extra 13th month payment each year.
Increase Contributions with Bi-weekly Payments
Most mortgages are structured with 12 monthly payments. But if you shift to a bi-weekly payment plan, you effectively increase the number of payments you make in a year. If you receive a bi-weekly salary from your company, you can time your mortgage payments accordingly. But note that bi-weekly payments are made every two weeks, not twice a week. Some months will have three payments, so anticipate this cost.
While there are only 12 months in the calendar, the bi-weekly schedule takes advantage of 52 weeks in a year. This is equal to 26 bi-weekly payments. By the end of the year, this results in 13 full monthly payments. Moreover, you can add extra payments on top bi-weekly payments, which further reduces your term and increases your savings.
The following example shows how much you can save by shifting to a bi-weekly payment plan. It also includes how much you’ll save if you add an extra $50 or $150 to your bi-weekly payments. It presumes you began making bi-weekly payments at the start of your mortgage.
30-Year Fixed-Rate Mortgage
Loan Amount: $300,000
Rate (APR): 3.5%
Monthly Payment: $1,347.13
Bi-weekly Payment: $$673.57
|Mortgage Details||Monthly||Bi-weekly||Biweekly, Extra $50||Bi-weekly, Extra $150|
|Periodic Payment (P&I)||$1,347.13||$673.57||$723.57||$823.57|
|Pay-off Time||30 years||26 years 8 months||25 years 5 months||24 years 3 months|
|Time Saved||0||4 years 5 months||5 years 7 months||6 years 9 months|
|Total Interest Costs||$184,969||$163,428||$147,405||$124,552|
In this example, if you choose a bi-weekly schedule, you can pay your 30-year FRM within 26 years and 8 months. This also saves you $21,541 on total interest costs. If you add $50 on your bi-weekly payments, you can pay off your loan in 25 years and 5 months. It will save you $37,564 in total interest charges. Finally, if you add $150 on your bi-weekly payments, you’ll pay off your mortgage within 24 years and 3 months. This will save you $60,417 in overall interest costs.
Depending on your budget, decide how much extra payment you can make. Once you commit to that amount, you should pay off your mortgage within your desired time frame. In this example, if your goal is to pay off your mortgage within 24 years, you should set aside $150 every bi-weekly pay period.
Watch Out for Payment Processing Scams
While some banks offer free bi-weekly plans, others may require you to make an enrollment fee. Many also do not have their own bi-weekly system, so they require a third-party payment service. When this happens, beware of payment processing scams. Many of these companies have costly setup fees, but only make monthly payments on your behalf. It cancels any savings you’ll make from a bi-weekly setup.
If you can’t obtain a bi-weekly plan, there’s a way to replicate this effect without changing your payment schedule. You can do this by simply calculating the extra payment amount on your mortgage.
First, divide your monthly principal and interest payment by 12. The subsequent amount will be the extra payment you need to add each month. For example, your monthly principal and interest payment is $1,300. If we divide this by 12, the resulting amount is $108.33. In this scenario, you must add $108.33 to your monthly payments, increasing it to a total of $1,408.33.
Make a 13th Payment Each Year
Extra monthly payments and bi-weekly plans are a not appealing to everyone. Some people don’t want to deal with budgeting plans that often. If you’re one of those people, you can keep mortgage payments simple by budgeting for a 13th monthly payment each year. You can pay this during the start of the year or towards the end of the year.
To make things convenient, you can time your payment whenever you receive a large bonus from work, or your annual tax refund. The average tax refund as of February 21, 2020 was $3,125, according to the IRS. If you happen to save a significant amount from overtime work or freelance jobs, it can also be your 13th mortgage payment.
The example below shows how much you can save from making a 13th payment, starting on the third year of your mortgage. It also shows how much time you can remove from your current payment term.
30-Year Fixed Mortgage
Loan Amount: $300,000
Rate (APR): 3.5%
|Mortgage Details||Original Payments||With 13th Payment Each Year|
|Extra Mortgage Payment||0||$1,347.13 (once a year)|
|Monthly P&I Payment||$1,347.13||$1,347.13|
|Pay-off Time||30 years||26 years 7 months|
|Time Saved||0||4 years 5 months|
|Total Interest Costs||$184,969||$162,447.93|
In this example, you can save a total of $22,521.07 on interest charges if you start making a 13th payment on the third year of your mortgage. If you do this consistently each year, you’ll be able to pay off your mortgage within 26 years and 7 months. If you want to pay your loan sooner, you must budget for a higher 13th payment each year.
Make a Large Lump Sum Contribution
Extra mortgage payments may also be paid as a large lump sum payment. After a few years of paying your loan, you might stumble upon a substantial windfall. Maybe you inherited a large amount of money when your grandmother passed away. Perhaps your business is thriving, and you received hefty profits. If you don’t have other plans to invest your money, you can put it towards your mortgage.
As you can imagine, paying a large sum will reduce your principal a great deal at once. And if you make extra payments, it will further reduce your interest charges and pay your loan faster. In the following example, let’s suppose you’re making a lump sum payment of $50,000 toward your mortgage. This payment is applied on the third year of your term.
30-Year Fixed Mortgage
Loan Amount: $300,000
Rate (APR): 3.5%
|Mortgage Details||Original Payment||Lump Sum Payment|
|Extra Mortgage Payment||0||$50,000|
|Monthly P&I Payment||$1,347.13||$1,347.13|
|Pay-off time||30 years||22 years 10 months|
|Time Saved||0||8 years 2 months|
|Total Interest Costs||$184,969||$118,192.94|
In this example, a lump sum contribution of $50,000 on the third year of your mortgage removes 8 years and 10 months from your term. This saves you a total of $66,775.33 on interest charges. Now, if you can make extra payments, it’s possible to reduce your current term to 20 years, or even less.
Paying Extra at Once vs. Over Time
Ideally, if you have the funds to pay for your mortgage sooner, consider doing so. For instance, if you can pay an extra $3,000 toward your mortgage, it’s better to pay it now than to stretch it out at $100 per month. Paying extra right away immediately reduces your principal. A large payment today eliminates future interest on your mortgage. So if you have the means, consider paying a lump sum contribution right away.
Apart from extra mortgage payments, other consumers prefer mortgage refinancing to pay their loan faster. Refinancing is taking out a new mortgage to replace your current one. This lets you change your loan’s rate and term. As such, majority of people who refinance typically change from a 30-year FRM into a 15-year FRM. But expect your monthly payments to increase significantly when you change to a shorter term. Refinancing is also ideal if you intend to stay long term in your home.
More people tend to refinance when market rates are considerably low. Such is the case when rates dropped to historic lows in 2020 due to the COVID-19 crisis. People time refinances when market rates are low to obtain more favorable rates. Securing a low enough rate guarantees higher interest savings, and also helps you recoup the closing costs faster.
Next, refinancing comes with hefty closing costs, which is between 3% to 6% of your loan amount. For example, if your loan amount is $220,000, your closing cost can be around $6,600 to $13,200. Financial experts recommend refinancing at least 1% to 2% lower than your original rate. Without a low enough rate, you cannot justify the cost of refinancing your mortgage. If you cannot obtain a lower rate or afford the refi costs, it’s better to stick to making extra payments instead.
Furthermore, note that refinancing is a time-consuming proposition. First, you must have a credit score of at least 620 to qualify. But if you want more competitive rates, consider improving your credit score up to 700 and above. Most refinances also take an average of 30 to 45 days to close from the time of application, which may take longer depending the number of applicants.
Adverse Market Refinance Fee
Due to the recession caused by the COVID-19 crisis, Fannie Mae and Freddie Mac began requiring an adverse market refinance fee of 50 basis points for borrowers. This rule officially took effect in December 1, 2020 for all refinances. Only borrowers with mortgages below or equal to $125,000 are exempted from the fee, as well as FHA and VA loans refis. Consider this extra charge before refinancing your mortgage.
To show you how refinancing works, here’s an example. Suppose your home’s price is $325,000 and you made 20% down worth $65,000. Your loan amount is $260,000 and you got a 30-year FRM at 4.2% APR. Now, on the fourth year of your mortgage, you decide to refinance into a 15-year FRM at 2.5% APR. The following table shows how much your payment will change, including changes in your total interest costs.
30-Year Fixed-rate Mortgage
Home Price: $325,000
Down Payment: $65,000
Loan Amount: $260,000
Rate (APR): 4.2%
Time left: 336 payments (27 years)
Remaining Loan Amount: $246,158.46
Refinanced Loan Term: 15 years
Refinanced Rate: 2.5%
Discount points: 2%
Origination points: 1%
|Mortgage Details||Original Mortgage||Refinanced Mortgage|
|Monthly P&I Payment||$1,271.44||$1,641.36|
If you refinance your current 4.2% mortgage to a 2.5% mortgage, your monthly principal and interest payment will increase by $369.92. Your total interest charges will be reduced to $49,285.99, which saves you $116,626.45 over the life of the loan. On the other hand, the closing cost for the refinanced mortgage amounted to $6,123.17. In order to recoup this cost, you must stay in your home for at least 18 months. That’s how long it will take to breakeven on the cost of refinancing.
In this scenario, refinancing into a 15-year FRM results in higher interest savings compared to making small extra mortgage payments. However, consider the closing costs and the higher monthly payment. If you have ample funds and you’re staying for a long time in your house, refinancing is a sensible financial strategy. But if you can’t afford it, it’s best to stick to making extra mortgage payments instead.
Assess Your Financial Priorities
Before prepaying your mortgage, be sure to evaluate your finances against your priorities. Though it eventually boosts savings, it comes with certain opportunity costs. While you’re prioritizing mortgage payments, you’ll have less money for your emergency funds, retirement savings, and other important expenses.
The following table summarizes the pros and cons of prioritizing mortgage payments over other expenses:
|Saves you more money on interest charges|
Improves creditworthiness, makes it easier to secure loans in the future
Frees up your cash flow so you can save more
Put savings toward retirement and other investments
You don’t worry about mortgage payment during retirement
|Limits your purchasing power|
Less room in your budget for emergency saving
Less money going toward retirement funds
Less money going to high-interest debts
Removes tax deduction benefits on your mortgage
Possible prepayment penalty charges
For instance, if you need sudden car repairs or emergency hospital care, you won’t have as much cash for your safety net. For this reason, you should have enough emergency savings before prioritizing mortgage payments. Financial advisors recommend saving 6 months to a year’s daily expenses for emergency funds. You’ll never know when you need it for a rainy day.
Next, if you have high-interest credit card debt, you’re better off prioritizing those payments. Large debts with high interest whittle away your income the longer you don’t pay them. To avoid toxic debt, make sure to pay off large credit card balances. Credit card debt is not tax deductible, while mortgages provide tax deduction privileges. So take care of those large credit card bills first.
Furthermore, you might have essential expenses you need to address today. Things like preparing for your new baby and childcare services should be a higher priority. Perhaps you’re busy building a profitable business. If your money is tied, you might be better off prioritizing those expenses first. When you have more room in your budget, you can make extra mortgage payments in the future. Once you do, don’t forget to ask about prepayment penalty. As much as possible, you want to avoid punitive charges that will forfeit any savings from extra payments.
Assessing your goals and priorities is a crucial step in managing your finances. Before committing a large portion of your income to mortgage payments, think of the benefits and drawbacks. Finally, once your goals are clearer, you’ll be able to make wiser financial choices.
Compared to short terms, most American homebuyers take 30-year fixed-rate mortgages because of the affordable monthly payments. The extended term provides homebuyers with a larger loan amount, allowing them to purchase bigger homes and houses located in better areas. This is a practical deal, at least in the beginning, especially for people with limited savings.
However, 30-year fixed mortgages come with expensive interest charges. This is tens and thousands of dollars more expensive than 15-year or 20-year terms. To avoid this long and expensive debt obligation, people employ ways to reduce their term. One way to do this is by refinancing into a lower rate and shorter term. However, refinancing is an expensive option, which may not be feasible for other borrowers.
Besides refinancing, you can make additional payments on your mortgage to reach your payoff goal. You can do this by making extra monthly payments, budgeting for a 13th monthly payment each year, or taking a bi-weekly payment plan. You can also make a large lump sum contribution to reduce your principal at once.
Choose the payment strategy that best works for you. Some people prefer making incremental payments, while others find fulfillment in making one large contribution at once. As long as you stay committed to your financial plan, you can pay your mortgage early and maximize your savings.
San Diego Borrowers: Are You Unsure Which Loans You'll Qualify For?
We have partnered with Mortgage Research Center to help San Diego homebuyers and refinancers find out what loan programs they are qualified for and connect them with San Diego lenders offering competitive interest rates.