Extra Payments Yield Big Savings

There's a simple trick to reduce the repayment period of your mortgage and save you thousands in interest: Make additional payments that apply to your principal. People pay extra in several ways. Paying one extra full payment once every year may be the simplest to keep track of. If you can't pay an additional whole payment all at once, you can divide that payment by 12 and write a check for that additional amount monthly. Another option is to pay a half payment every other week. The effect here is that you will make one additional monthly payment each year. These options differ a little in lowering the total interest paid and shortening payback length, 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

Some borrowers just can't make extra payments. But you should remember that most mortgages allow additional principal payments at any time. You can take advantage of this rule to pay extra on your mortgage principal any time you come into extra money. If, for example, you were to receive a large gift or tax refund three years into your mortgage, you could pay a portion of this money toward your loan principal, which would result in significant savings and a shortened loan period. For most loans, even this relatively small amount, paid early in the mortgage, could offer huge savings in interest and length of the loan.

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