Paying regular extra payments on the principal balance yields singificant returns. Borrowers pay more on principal in many different ways. Making one extra full payment once per year may be the simplest to keep track of. If you can't afford to pay an additional whole payment all at once, you can split that large amount into 12 smaller payments and pay that additional amount monthly. Finally, you can pay a half payment every two weeks. Each option produces slightly different results, but each will significantly shorten the duration of your mortgage and lower the total interest you will pay over the duration of the loan.
Lump Sum Extra Payment
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 permit you to make additional payments to your principal at any point during repayment. You can take advantage of this rule to pay extra on your principal any time you get some extra money.
If, for example, you receive a very large gift or tax refund five years into your mortgage, you could pay a portion of this windfall toward your mortgage loan principal, resulting in huge savings and a shortened payback period. For most loans, even this modest amount, paid early enough in the loan period, could offer huge savings in interest and in the length of the loan.
Ashok Lakshmanan can walk you At Ashok Lakshmanan, we answer questions about money-saving strategies almost every day. Call us at 630-717-3600.