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Making Extra payments towards your mortgage? A few need to know’s……

You probably already know that making extra mortgage payments is a simple way to reduce your principal and shorten the length of your mortgage.

But, did you know that when and how you make those extra payments could affect how much you save on your mortgage?

Here is how to get that extra bang for your buck that you are looking for!

Just One Extra Payment a Year Can Drastically Reduce Your Principal Balance

That’s right. Making one extra mortgage payment a year can save you thousands.

Take a $350,000 loan at 4.5% amortized over 30 years (a 30 year fixed) and you’ll pay $288,423.49 in interest.

If you took the same scenario and made one extra (principal) payment per year you will pay the loan off in the 26th year and your total interest paid over those years will be $239,959.66.  That is a savings of $48,463.83 in interest!”

Beware: Making Extra Payments Can Cost You

Our experts agree it’s important to understand your lender’s extra payment policies.

It is best to contact your lender to ask what their policy is with regards to extra payments and also find out if they charge a fee. 

These plans often carry enrollment fees and transaction charges.  To avoid these potential fees, pick up the phone and go through the terms of your mortgage with your lender.

Beware: Unwanted solicitations       

Some companies will mail you and try to have you enroll with their bi-weekly payment plan or program.  Our best advice is to set up your payment plan if you desire, directly with your lender as it will be most efficient.

The Bottom Line

Overall, you just want to be smart about making those extra payments. Make sure you’re not getting charged an early payment fee. Otherwise, your dollar may not stretch as far as it could.

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