Paying Off Your Mortgage Early: Here's How It Works
Posted on: 29 November 2019
A mortgage is an extremely important investment that you may make multiple times in your life. While many people are unable to pay off their mortgage early, it is possible. Often, people seem surprised that though they have made large monthly payments each month, the principal (the actual amount they borrowed in the first place) does not seem to be getting paid back as quickly as they thought it would. When you pay your mortgage payment each month a large portion goes towards the interest charged on the loan. Interest is how the entity who loaned you the money to buy your home will make money of their own. The ratio of how much of your payment is interest versus principal payment depends on the interest rate of your loan. This is an important concept to understand before you can make a plan of how to pay off your mortgage early. Here are a few tips that can help you to formulate your own plan.
Pay an Extra Payment
Choosing to pay one extra normal mortgage payment can work wonders in paying down your principal amount. If you think about it, interest is calculated based on the amount of money owed. Hence, if you make an extra payment the principal is potentially reduced by a few thousand dollars, and so your interest also decreases. This is true for all future payments.
Pay an Extra Set Amount Each Month
One way that many homeowners pay down their principal quickly is by choosing a fixed amount on top of their usual payment and paying it monthly. This amount does not have to match your mortgage payment. Even just $50 or $100 a month in addition to your mortgage will chip away at your principal payment.
Pay Half Your Mortgage Every 2 Weeks
Paying half of your mortgage every 2 weeks is another method of making an extra mortgage payment each year. Since there are 52 weeks in a year, you will end up making 13 mortgage payments. This method works better for some families since not many people have an extra mortgage payment lying around on a regular basis.
The basic concept of saving money on your mortgage is to pay down the principal instead of just throwing away money on the interest on your loan. Any amount of extra money that you can allocate to your mortgage will save you thousands in interest.
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