How many years does an extra mortgage payment take off

Paying off your mortgage early can help provide you with financial stability, and you may save money in the long term by accruing less interest. Here are some ways you can pay off your mortgage faster:

1. Refinance your mortgage

If interest rates decline, you may be able to reduce the amount you pay toward interest by refinancing your mortgage. Additionally, you may also elect to reduce your loan term significantly.

2. Make extra mortgage payments

Another way you may be able to save money on interest, while reducing the term of your loan is to make extra mortgage payments. If your lender doesn’t charge a penalty for paying off your mortgage early, consider the following early mortgage payoff strategies.

Just remember to inform your lender that your extra payments should be applied to principal, not interest. Otherwise, your lender might apply the payments toward future scheduled monthly payments, which won’t save you any money.

Also, try to prepay in the beginning of the loan when interest is the highest. You may not realize it, but the majority of your monthly payment for the first few years goes toward interest, not principal. And interest is compounded, which means that each month’s interest is determined by the total amount owed (principal plus interest).

3. Make one extra mortgage payment each year

Making an extra mortgage payment each year could reduce the term of your loan significantly.

The most budget-friendly way to do this is to pay 1/12 extra each month. For example, by paying $975 each month on a $900 mortgage payment, you’ll have paid the equivalent of an extra payment by the end of the year.

4. Round up your mortgage payments

Another way you can help reduce the term of your mortgage significantly is to round up. When budgeting for your mortgage payment, round up to the next highest $100 amount. Pay $800 instead of $743. Or $900 instead of $860.

5. Try the dollar-a-month plan

The dollar-a-month strategy should be financially feasible if your income increases slightly but consistently over time.

Each month, increase your payment by $1. Simply pay $900 the first month, $901 the second month, and so on. For a 30-year, $900-per-month mortgage with a 6% fixed interest rate on a loan of $150,000, you could reduce the term of your mortgage by eight years.

6. Use unexpected income

Send any unexpected windfalls straight to your mortgage company. This includes holiday bonuses, tax returns and credit card rewards. Using this money won’t cut into your regular monthly budget.

Benefits of paying mortgage off early

Many people struggle when deciding whether to pay off their mortgage or build up savings, but in the long run, the benefits of getting free from that mortgage really shine through. For one, having one debt paid off means being able to handle any short-term debts such as credit cards. You also end up saving money if you pay off your mortgage earlier, avoiding additional interest that would have otherwise accrued. Your financial stability is bolstered by cutting out these future payments and also by your ability to better endure turbulent housing market conditions.1

Paying off your mortgage in seven or even 10 years will save you tens of thousands or even hundreds of thousands of dollars in interest. The money you save can be invested or saved and earn you even more money over the long term. You have to do more than just say you want to pay off your loan in ten years; you have to make a plan. Making a plan and executing it is the hardest part, but worthwhile, once it’s completed.

Calculate the Extra Principal Payments

Calculate how much extra your payment must be to meet your goal. The general rule is that if you double your required payment, you will pay your 30-year fixed rate loan off in less than ten years. A $100,000 mortgage with a 6 percent interest rate requires a payment of $599.55 for 30 years. If you double the payment, the loan is paid off in 109 months, or nine years and one month.

Develop a Home Budget

Create a working budget that includes the extra mortgage payments. Paying off your home is a worthy goal, but you still want to have funds to live your life. Do not sacrifice savings for paying off your home. If an emergency arises, it will be harder to access the equity in your home quickly than if you have money saved.

Become A Saver

Live within the budget for six months before you send in extra payments. Put the extra payment away in a savings account, and if you find you need the money during the six-month trial period, re-examine your budget. If you are able to enjoy your lifestyle without the extra funds, make one large extra payment with all of the money saved after the trial period is over.

Send Payments As Principal Payments

Send in your extra payments separate from your regular payment and clearly designate them to apply to principal only. This will ensure your extra payments are not credited to unearned interest. Combining the payments can cause confusion for the servicer, particularly when you send it in for the first time. Keep copies of your checks, or records of your online payments. Track your extra payments using a payment calculator.

Tip

Use an online mortgage calculator that allows you to enter periodic or regularly occurring extra payments; download it into your favorite spreadsheet program.

Round up your mortgage payment to the nearest $100. This little bit by itself can help shave months off your mortgage.

Refinance into a lower interest-rate mortgage, but keep making the old, higher payment amount to further accelerate your loan’s payoff date.

Warning

Making extra payments when they are not required can be challenging. Some people procrastinate sending the extra payment, even though it is within their budget. Refinance into a 10-year mortgage to force yourself to pay the extra money.

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