Making extra payments towards your mortgage can be a wise idea as it can shave off years on the loan duration. For example, if you were to purchase real estate available on my exclusive listing page, it could also save you thousands and thousands of dollars over the loan period. It is recommended that you do this on your own volition rather than enrolling in an accelerated payment plan as those can cost hundreds of dollars.
Here are 3 great ways to pay down your mortgage earlier than anticipated.
- Increase your monthly payment by 1/12th. The additional dollars that you are paying towards your balance is applied to the principal. The principal is the total dollars that you owe without the interest. Most of the monthly payments that you make early on in the mortgage term are primarily interest so paying down the principal will save you a lot in the years down the road.
- Make one extra annual payment. Making an extra payment can be easier if you get a yearly bonus or if you get a nice tax refund. Take these funds and apply them to the next payment towards the principal. This will help reduce the principal so you will be ahead of schedule and shorten the loan term.
- Pay half of your regular payment every two weeks. Some lenders allow you to do this at no cost, some will require that you enroll in a formal plan for a charge. Alternatively you can manage this yourself in your own accounts on your end. Try transferring these payments from checking to savings accounts, then pay the total amount to your lender when payment is due.
After one year, you will have made 26 half payments which translates into 13 full payments or 1 extra per year. As an example of the potential savings, a $200,000 30-year loan with one extra payment per year will bring it down to 26 years with a savings of over $32,000 in interest.