There are a few ways you can you can make extra payments on your mortgage. If you take advantage of one or more you can be on the path to a fully paid off home in no time with extra money in your pocket!
1. SWITCH TO ACCELERATED BI-WEEKLY PAYMENTS
A few weeks can make all the difference when you are talking about interest being paid in the hundreds of thousands of dollars. So instead of making 1 payment a month for a nice and easy 12 payments a year, consider making the switch to bi-weekly payments or 26 payments a year.
Here’s where the savings benefits of those accelerated bi-weekly payments come in.
Let’s say you have a $400,000 mortgage at an interest rate of 3.34% that remains steady over 25 years.
If you stick with the regular monthly payment option:
Your mortgage payment would be $1,963 a month and the total amortization interest you will have paid at the end of 25 years is $189,035.
If you switched to accelerated bi-weekly payments:
Your mortgage payment would be $982 every two weeks and instead of taking 25 years to pay off, you would be mortgage-free in 22.1 years—costing you $163,918 in amortization interest, a savings of $25,117.
2. ROUND YOUR MONTHLY PAYMENT UP
The results of this simple yet effective strategy can save you a hefty chunk of change in interest and reduce the length of your mortgage!
For example:
Let’s say you decided to take the accelerated bi-weekly mortgage payment of $982 (as described above under Strategy #1) and round it up to $1,000. That’s only an extra $18.00.
Now let’s break that extra $18 payment down even further:
$18 x 26 payments in a year = $368, which amounts to just $1.06 a day. That extra $1.06 a day would shave 4 years off your amortization and save you $29,857 on your mortgage. That is less than a cup of coffee a day, to do all of that is it worth it?
I think so!
3. MAKE LUMP SUM ANNIVERSARY PAYMENTS
Most financial institutions allow you to make 1 lump sum payment to your mortgage up to a certain amount each year on the anniversary of the mortgage. The lump sum payment doesn’t even have to be a huge amount to make a difference as it all adds up! You can maximize you lump sum payment however by taking any extra money that you receive throughout the year and setting it aside like birthday gift money, tax returns, or just being smarter with your money and having a little extra to put aside.
