How Can I Pay Off My Mortgage Early?
This holiday season, give yourself a gift that can save you significantly over the term of your mortgage – an additional payment. If you are unable to gift the full amount this month and your lender doesn't charge a penalty for paying off your mortgage early, consider implementing one of the following budget-friendly strategies year-round. You’ll still receive the benefits of paying off your mortgage earlier, although the impact on your loan term varies between each strategy and the total amount of each additional payment.
Round up to the next highest $100 amount. For example: if your mortgage payment is $845, pay $900 and apply the additional $55 to your principal balance.
Increase your payment by $1 each month. Simply pay $900 the first month, $901 the second month, and so on. For a 30-year, $900-per-month mortgage with a 6% fixed interest rate on a loan of $150,000, you could reduce the term of your mortgage by eight years.
Apply your annual bonus or tax refund. Either apply the full amount to your principal, or at least an amount equal to one additional mortgage payment.
Making additional payments to your principal has more of an impact in the beginning of the home loan when interest is the highest. If you review the Amortization Schedule of your loan, you'll see the majority of your monthly payment for the first few years goes toward interest, not principal. Also, the interest is compounded, which means that each month’s interest is determined by the total amount owed.
Round up to the next highest $100 amount. For example: if your mortgage payment is $845, pay $900 and apply the additional $55 to your principal balance.
Increase your payment by $1 each month. Simply pay $900 the first month, $901 the second month, and so on. For a 30-year, $900-per-month mortgage with a 6% fixed interest rate on a loan of $150,000, you could reduce the term of your mortgage by eight years.
Apply your annual bonus or tax refund. Either apply the full amount to your principal, or at least an amount equal to one additional mortgage payment.
Making additional payments to your principal has more of an impact in the beginning of the home loan when interest is the highest. If you review the Amortization Schedule of your loan, you'll see the majority of your monthly payment for the first few years goes toward interest, not principal. Also, the interest is compounded, which means that each month’s interest is determined by the total amount owed.