Big Mortgage Savings for a Little Effort

Pay a Little Extra Toward the Principal on Your Home Mortgage Loan

Making a little extra payment to your principal here and there can cut years off the length of your loan and save you tens of thousands of dollars in interest charges. By using Bankrate’s mortgage loan payoff calculator you can see how $100 - or ANY amount added to your payment can benefit you.

Even if you pay only a LITTLE more principal, you still get a bonus. The lower your principal balance - the more each payment applies to principal - and less goes to cover interest expense. The biggest portion of your early mortgage payments go toward paying interest…so paying anything extra on principal NOW can make a huge difference in the years ahead.

    • If nothing else round your payments up! If your payments are $644, think of it as $650. The extra $6 a month on a $200,000, 30-year loan can save four payments at the end of the mortgage loan.
    • Make one extra payment a year. Consider using your annual bonus or tax refund.
    • Make Biweekly payments. Take advantage of the fact that there are 52 weeks in the year and 12 months; therefore 26 biweekly pay periods. So, if you pay half your regular mortgage payment every two weeks, by the end of the year you'll have made 26 half-payments, or the equivalent of 13 full monthly payments = 1 extra yearly payment. * Ask if your bank will set up a biweekly payment plan. Some banks do it free; others charge a fee which negates a portion of the benefit.

Or - do it yourself - and get the same benefit as making biweekly payments (see below)

    • Increase your monthly payments by one-twelfth. This method is essentially the same as making one extra payment a year toward principal, but in monthly increments which you control – obviously the more you pay the greater the benefit. The extra amount of course being applied toward principal* - reducing your principal balance. Say you have a monthly payment of $500.00 per month; one twelfth would be approximately $41.67… this is the additional amount which you would apply monthly toward principalAnother example: your monthly payment is $1,200, - pay $1,300 instead (which is one twelfth). You'll bring your principal down and the extra annual payment can chop about six years off a 30-year mortgage.

* Be sure to apply 100% of the additional payment amount to your principal balance - by checking the "add to principal box" on your monthly coupon - or in the space provided for online payments. If not, the additional amount will automatically be applied to your next scheduled monthly payment - giving you no benefit. Check your contract to be sure there are no prepayment penalties.

Consider this: A $200,000 30-year home loan, with an interest rate of 5%, would cost you a total of $186,512 in interest, if paying the traditional 12 yearly payments. However, if you were to make just one extra payment a year you will pay only $153,813 in interest – a savings of $32,699.

Do the math – Extra payments really do add up!