Making consistent additional payments toward the principal balance can yield big returns. People use different methods to meet this goal. For many people,Perhaps the easiest way to keep track is by making one extra payment a year. However, some folks will not be able to afford such an enormous extra payment, so splitting a single extra payment into twelve extra monthly payments works too. Finally, you can pay a half payment every other week. These options differ a little in lowering the final payback amount and shortening payback length, but they will all significantly reduce the duration of your mortgage and lower the total interest you will pay over the life of the loan.
It may not be possible for you to pay down your principal every month or even every year. But remember that most mortgages will allow you to make additional payments at any time. Whenever you get some extra cash, you can use this rule to make a one-time additional payment on your principal.
Here's an example: five years after moving into your home, you receive a very large tax refund,a large inheritance, or a non-taxable cash gift; , you could pay this windfall toward your mortgage loan principal, resulting in huge savings and a shortened payback period. For most loans, even a modest amount, paid early in the mortgage, could offer huge savings in interest and in the length of the loan.
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