If you take a full 30 years to pay off your mortgage, you will pay an enormous amount of interest. But you can shrink that interest expense by making extra payments. Here’s what you need to know about accelerating your mortgage payments.
Pay early and often
Unlike some other consumer credit accounts, you can pay extra each month on the principal of your mortgage. By lowering the principal balance, you decrease the overall amount of interest you owe on the loan. You can accelerate your mortgage payments in several ways.
- You can make biweekly payments. To do this, divide your monthly mortgage payment in half and pay that amount twice each month. This will result in 26 payments – or 13 months’ worth – each year. That extra amount will reduce the total interest you’ll pay over the life of the loan.
- You can divide your monthly payment by 12 and add that amount to each monthly payment you send to your mortgage company. This will also equate to one extra payment each year.
- You can decide on an even more aggressive additional monthly payment amount. But be sure to choose an amount you can sustain over the long term.
Make clear to your mortgage company that you want the extra amount to be applied to the principal.
Some mortgage companies charge borrowers a “prepayment penalty” when you pay part or all of your mortgage off early. But typically, making a few extra payments of principal only will not trigger these penalties. Check with your mortgage company to be sure.
Exercise discipline
Paying down your principal by accelerating mortgage payments requires discipline. Take pains to avoid “lifestyle creep” as raises and bonuses increase your income so that you can apply those extra funds to your mortgage. You can also take on a “side hustle” and use as much of your newfound earnings as possible for this purpose.
Related – Are Biweekly Mortgage Payments Worthwhile?
