Paying consistent additional payments on your loan principal will yield enormous savings.
Borrowers accomplish this goal in several ways. For many people, perhaps the simplest way to organize this process is to make one extra payment a year. If you can’t pay an additional whole paymentin one month, you can split that large amount into 12 smaller payments and pay that additional amount monthly.
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 each will significantly shorten the duration of your mortgage and lower the total interest paid over the life of the loan.
Lump Sum Extra Payment
Virtually all mortgages will permit you to make additional payments to your principal at any point during repayment. Whenever you get some extra money, consider using this rule to pay an additional one-time payment toward principal.
Here’s an example: a few years after moving into your home, you get a larger than expected tax refund, a large legacy inheritance, or a non-taxable cash gift. Paying a few thousand dollars into your mortgage principal can shorten the repayment period of your loan and save enormously on mortgage interest over the life of the loan. Unless the loan is quite large, even a few thousand dollars applied early can produce huge benefits over the life of the loan.
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