Extra Payments Yield Huge Savings

Here's a simple trick to reduce the repayment period of your mortgage and save you thousands of dollars in interest: make additional payments that are applied toward the principal. Borrowers make this happen in a few different ways. For many people, perhaps the simplest way to organize this process is by making one extra payment per year. If you can't pay an additional whole payment all at once, you can divide your payment by 12 and pay that additional amount monthly. Another option is to pay half of your payment every two weeks. The effect here is that you make one additional monthly payment in a year. Each of these options produces different results, but each will significantly shorten the duration of your mortgage and lower your total interest paid.

Lump Sum Extra Payment

Some folks just can't make any extra payments. Remember that almost all mortgage contracts will allow you to make additional payments to your principal at any time. Any time you come into unexpected money, consider using this rule to make a one-time additional payment on your principal. If, for example, you were to receive a large gift or tax refund three years into your mortgage, you could pay a portion of this windfall toward your loan principal, resulting in huge savings and a shortened payback period. Unless the loan is very large, even a few thousand dollars applied early can produce huge savings over the duration of the loan.