How Much Can You Save by Making Extra Mortgage Payments?
You likely pay your mortgage payment each month and call it a day because you’re paying off your home loan on time and with no added fees. This is great, but did you know there’s a way to shave thousands off of the amount of interest you pay over the lifetime of your loan. Who doesn’t want to reduce the money they spend on mortgage interest?
When you make extra mortgage payments, you’ll pay off the loan sooner, lower the amount of debt you have, and save thousands of dollars on interest. If you have extra room in your budget or have a lump sum of cash burning a hole in your pocket, you should put some of that towards your mortgage.
To see the power of making extra mortgage payments, take a look at this example. If you have a $200,000 fixed-rate loan for 30 years at 4.1% interest, you’ll have a monthly payment of $966.40. Not too bad!
But that mortgage payment includes a big chunk of interest. Over the life of your loan, you’ll end up paying nearly $148,000 in interest–that’s in addition to the principal loan amount of $200,000. I think most people would agree that it’d be great to save some money on that $148,000 interest amount.
Enter: extra mortgage payments. If you add just an additional $100 per month to your mortgage payment, bumping it to $1,066.40, you’ll save roughly $28,000 in interest costs AND pay off your loan around 5 years early.
Just paying $100 more a month can make a huge difference for your finances. Imagine what you could do with that extra $28,000–a home remodel, a down payment for an investment property, a college fund for your kids, etc.
Paying off your mortgage early might seem a bit daunting, but it really doesn’t have to be challenging for your budget. Adding what you can to your mortgage payment, even just $100, will decrease the length of your loan and your interest costs.