Mortgage payments are part of the life of most homeowners. And when the mortgage is paid off and your home is yours, free and clear of any debt, it is a cause to celebrate. To make that happy day arrive sooner many homeowners make extra payments on their mortgages.
Make sure that your lender allows this and allows early payments without a penalty. This is something to discuss with your real estate agent when you are searching for lenders to pre-approve your loan. All other factors being equal with a lender you might as well have the option to make early payments and without getting penalized.
But, if they can make early payments without a penalty many homeowners opt for an extra payment every quarter which is four extra payments a year.
When you pay ahead on your mortgage you not only reduce the remaining principal that you owe but you also reduce the interest that you owe each month as well. Your mortgage payment amount remains the same but you are now paying less on interest because the principal is shrinking faster than anticipated. Thus your principle reduces faster and faster compared to a normal repayment schedule.
How much faster can you pay off your mortgage with this approach? It depends on how high an interest rate you are paying. With an interest rate in the six percent range on a 30-year loan, you might be able to pay off the mortgage in closer to 15 years. If your lender allows early payments they can also help you with a mortgage recalculation. You will then see the magic of how early payments accelerate principal reduction and thus greatly accelerate interest owed each month. Thus the extra money you pay towards your mortgage goes to pay off your principal even faster!
More Money or More Discipline
When you get that long-awaited promotion and a raise at work it is a good time to start making an extra mortgage payment every three months. But you can start this approach even without the raise! It has to do with budgeting and discipline. Carry your lunch to work a few times a week in the proverbial brown bag. Take the money that you would have spent for lunch at the restaurant down the street from work and put it aside. And, do you like Starbucks? It seems everyone does but if you stop in for a MacDonald’s coffee on the way to work instead of a spruced up latte from Starbucks you can put that money aside as well. And, how about the coffee pot at work? Make do with office brewed coffee and save even more. The point is that we all have expenses in life that could easily be reduced if we have a good reason to do so. Make it a hobby to save ones and fives every day out of every week that you can. The bottom line is that every time you pay ahead on your mortgage it helps to reduce how long you need to keep paying the bank.