Your mortgage is typically your largest monthly expense. Therefore, it offers perhaps the largest single source of savings.
Extra payments: Every time you make an extra principal payment, you shorten your loan by a month and save a month’s worth of interest.
Any formula works. One extra full principal and interest payment a year will cut a 30-year loan to about 17 years, and adding the next month’s principal payment to this month’s total payment will shear the loan almost exactly in half.
Here’s an example: On a 30-year, $200,000 mortgage at 6 percent, the monthly payment for principal and interest is $1,199.10. But if you up the ante by $100 a month, you’ll pay the loan off in 24 years and save $49,476.40 in interest. Throw another $100 at your loan every month, and you’ll pay it off in just under 21 years, saving nearly $80,000 in interest.
You can save big bucks even if you add just $25 or $50 a month to your house payment, because the balance will be that much lower. But the key to being truly successful is being consistent. You can always skip an extra payment without penalty. But you will see the greatest benefit by unfailingly digging into your wallet a little deeper each and every month.
Make sure that you tell the lender the extra money is to be credited to principal. Also, keep your own records and check once a year to be certain that the lender has followed your instructions.
