Paying off a home mortgage early could be a smart decision for many borrowers. It can save thousands of dollars in interest and gives more opportunity for financial freedom. Homeowners may choose to save the extra money, make investments or put it into retirement plans.
There are several reasons to consider paying off a mortgage early. If that monthly payment were eliminated, the interest saved on a 30-year mortgage for a $120,000 house, for example, could easily be $170,000! The extra money each month could be invested or put into a savings account. The priceless feeling of owning a home free and clear and not having any debts to anyone is the peace of mind that follows!
If you want to learn how to pay off your mortgage early, keep reading to find out how to do it.
We all know that paying off your mortgage faster can save you a ton of money in the long run. But when you’re already juggling bills and expenses, finding extra cash to throw at your loan can feel like an impossible task.
The good news is, even a small amount like $100 extra per month can make a significant impact on your mortgage repayment timeline and the total amount of interest you’ll pay.
Let’s dive into the details and see how much of a difference an extra $100 a month can really make
The Power of Extra Payments
When you make an extra payment on your mortgage, that entire amount goes directly towards reducing your principal balance. This is different from your regular monthly payments, where a portion goes towards interest and the rest goes towards principal.
By reducing your principal balance faster, you’ll also be reducing the amount of interest you accrue over the life of the loan. This is because interest is calculated based on the outstanding principal balance.
How Much Can You Save?
Let’s say you have a 30-year mortgage for $300,000 at a 6.5% interest rate. If you make an extra $100 payment each month, you could end up paying off your loan four years faster and save yourself over $60,000 in interest.
That’s a pretty significant chunk of change, wouldn’t you say?
Finding the Extra Cash
So, how can you find an extra $100 a month to put towards your mortgage? Here are a few ideas:
- Cut back on unnecessary expenses: Take a look at your budget and see where you can cut back on spending. Maybe you can eat out less often, cancel a subscription you don’t use, or switch to a cheaper cell phone plan.
- Get a side hustle: There are many ways to make extra money on the side, such as driving for Uber, selling items online, or starting a blog. Even a few hours a week can add up to an extra $100 a month.
- Negotiate a raise: If you’ve been doing a great job at work, it might be time to ask for a raise. Even a small increase in your salary can free up some extra cash to put towards your mortgage.
The Bottom Line
Even a small extra payment can make a big difference in the long run. If you’re looking for ways to save money on your mortgage and pay it off faster, consider making an extra $100 payment each month. You’ll be surprised at how quickly it adds up.
Additional Resources
- Mortgage Calculator: Use a mortgage calculator to see how much you could save by making extra payments.
- Refinance Your Mortgage: Refinancing to a lower interest rate can also save you money on your mortgage.
- Talk to a Mortgage Lender: A mortgage lender can help you understand your options and choose the best way to pay off your mortgage faster.
Remember, every little bit counts!
Refinance to a Lower Rate
Refinancing to a lower rate or changing an adjustable rate mortgage to a fixed rate that is locked in for the term of the loan are two ways that homeowners can save money. It might make more sense to choose a 15-year mortgage over a 30-year loan if you would struggle to make the higher payments even if you were forced to. Usually, the interest rate on the loan with a shorter duration will be lower. For your convenience, here are current rates in your local area.
One thing to keep in mind when refinancing is that, even with streamlined refinancing, there are certain fixed costs associated with opening a new mortgage. Locking in a lower rate makes sense if you intend to stay in your house for a long time, but if you want to move within the next few years, refinancing might not be worth the expense unless you needed to take out a loan quickly or for another reason. A Home Equity Line of Credit (HELOC) could be a better choice than refinancing the entire mortgage when a homeowner needs a small amount of money.
Saving Money by Getting Below PMI Requirements
Mortgage companies require private mortgage insurance, or PMI, in cases where the borrower lacks the necessary funds for a down payment. It is protection for the lender in case the borrower defaults on the loan. Therefore, the bank is most likely charging PMI if a home was bought with less than a 20% down payment in 2020. However, once the borrower owns 20% of the home, this charge could be eliminated. Some borrowers take out a second mortgage to bypass the PMI requirement.
Some banks may charge you automatically for PMI until your loan-to-value (LTV) ratio reaches 2078%. However, you can call the bank when your loan reaches 80% to have PMI charges removed.
Paying extra on your loan: The RIGHT way to do it! (Monthly vs Annually)
FAQ
How much will I save if I pay an extra $100 a month on my mortgage?
How many years does 1 extra mortgage payment take off?
Is it worth paying 100 extra on mortgage?
How do I pay off a 30 year mortgage in 15 years?
How often do you pay extra on a mortgage?
One of the most common ways that people pay extra toward their mortgages is to make bi-weekly mortgage payments. Payments are made every two weeks, not just twice a month, which results in an extra mortgage payment each year. There are 26 bi-weekly periods in the year, but making only two payments a month would result in 24 payments.
Can you pay extra on a mortgage with only $100 per month?
Higher mortgage amounts can still put a sizable dent into the term of their loan with only $100 extra per month. Starting early in the amortization is the key to success with paying extra on your mortgage. Taking 4 years off of a $275,000 mortgage with only $100 extra per month looks like a win to me.
Should you pay extra on a 30 year mortgage?
Because 30 year mortgages are mostly interest payments for the first decade paying even a small amount extra on principal can greatly reduce how long you will have the mortgage payment for. I’ve been asked by multiple readers “What if I pay $100 extra on my mortgage?”
Should you pay extra on a mortgage?
Paying extra on a mortgage may help reduce the amount of interest paid over time, in addition to the total amount of time it takes to pay back your mortgage. You may be able to reduce the amount of interest paid and the time it takes to pay back your mortgage by applying extra payments directly to the principal balance.