Here's a simple trick to reduce the repayment period of your mortgage and save thousands in interest: Make extra payments that go toward the principal. You pay more on principal by employing various techniques. Paying a single extra full payment once a year may be the easiest to track. However, some folks will not be able to pull off such a large additional payment, so dividing a single additional payment into twelve extra monthly payments is a fine option too. Finally, you can pay half of your mortgage payment every other week. These options differ slightly in lowering the total interest paid and shortening payback length, but they will all significantly reduce the length of your mortgage and lower your total interest paid.
It may not be possible for you to pay down your principal every month or even every year. Keep in mind that almost all mortgage contracts will allow you to pay extra on your principal at any time. You can benefit from this provision to pay extra on your mortgage principal any time you come into extra money.
If, for example, you receive a large gift or tax refund five years into your mortgage, you could apply this windfall toward your loan principal, resulting in significant savings and a shortened payback period. For most loans, even this small amount, paid early in the mortgage, could offer huge savings in interest and duration of the loan.
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