You can enter extra lump sum payments in addition to extra monthly payments that match your regular monthly payments into this calculator. We also offer three other options you can consider for other additional payment scenarios.
Absolutely! Making extra payments on your fixed-rate mortgage is a fantastic way to accelerate your debt repayment and save a significant amount of money on interest charges. This strategy can shave years off your mortgage term and free up your finances for other goals.
Benefits of Making Extra Mortgage Payments
The advantages of making extra mortgage payments are numerous:
- Faster debt repayment: This is the most significant benefit. By putting extra money towards your principal, you’ll reduce the amount you owe and shorten your mortgage term.
- Reduced interest payments: Over the life of your loan, you’ll pay less interest, potentially saving tens of thousands of dollars.
- Increased equity: As you pay down your principal, you build equity in your home faster. This means you’ll have more financial flexibility in the future.
- Improved financial health: Paying off your mortgage early can free up your monthly budget for other financial goals, such as retirement savings or investing.
Different Ways to Make Extra Payments
There are several ways to make extra mortgage payments:
- Make one extra payment per year: This is a simple and effective way to get started. Choose a time of year when you have some extra cash, such as after receiving a bonus or tax refund.
- Make biweekly payments: This method involves splitting your monthly payment in half and making payments every two weeks. This effectively results in one extra payment per year.
- Make lump sum payments: If you have a windfall, such as an inheritance or bonus, you can make a lump sum payment towards your principal.
- Recast your mortgage: This involves making a large lump sum payment and then having your lender recalculate your payment schedule. This can result in a lower monthly payment or a shorter loan term.
Important Considerations
Before making extra mortgage payments consider the following:
- Prepayment penalties: Some mortgages have prepayment penalties, which can offset the benefits of making extra payments. Check your loan agreement to see if this applies to you.
- Financial goals: Make sure you’re comfortable with your current financial situation and have met other important financial goals, such as building an emergency fund and saving for retirement.
- Investment opportunities: If you have high-interest debt or lucrative investment opportunities, it might make more sense to allocate your extra funds there first.
Making the Decision
The choice of whether or not to increase mortgage payments is ultimately a personal one. Carefully consider the advantages and disadvantages of each option, then select the one that best suits your needs and financial objectives.
Additional Resources
Here are some additional resources that you may find helpful:
- Bankrate: https://www.bankrate.com/mortgages/prepaying-your-mortgage/
- American Financing: https://www.americanfinancing.net/saving-money/extra-mortgage-principal-payments
Making extra mortgage payments can be a smart financial move. By carefully considering the benefits and drawbacks, you can decide if this strategy is right for you and potentially save a significant amount of money on your home loan.
Exercising Additional Payment Options
When you sign on for a 30-year mortgage, you know youre in it for the long haul. You might not even think about trying to pay off your mortgage early. After all, what good is it? You’ll still be paying off your loan for decades, so unless you’re making two times as much each month, you won’t really affect your bottom line.
Not necessarily. Depending on the terms of your loan, even a small additional payment over time can reduce the length of your loan by years and save you thousands of dollars in interest.
Considerations for Extra Payments
Pay Off Higher Interest Debts First
Paying off your mortgage early isnt always a no-brainer. Even though it can save a lot of people thousands of dollars, it’s not always the best option for most people to get better financial situations.
Compare your potential savings to your other debts. For instance, it makes more sense to pay off credit card debt at a rate of fifteen percent before contributing any additional funds to your mortgage, which has an interest rate of only five percent.
Furthermore, for individuals who itemize their taxes, mortgage debt can be written off against income taxes, unlike many other debts.
Also consider what other investments you can make with the money that might give you a higher return. Investing can have a greater financial impact than paying off your mortgage if you can make a significant return and have emergency savings set aside. It is important to remember that volatility is a prerequisite for higher-yielding asset classes like stocks.
If you don’t intend to remain in your house for more than a few years, paying more toward your mortgage might not be wise. If you intend to move within the next five to ten years, you won’t be able to pay down your equity quickly enough to justify the investment. Prior to making additional mortgage payments, you should carefully consider the trends in your local housing market.
Do This To Pay Off Your Mortgage Faster & Pay Less Interest
FAQ
Can you make extra payments on a fixed mortgage?
Can you pay extra on a fixed-rate mortgage?
What happens if I pay an extra $100 a month on my mortgage principal?
How much can I pay off a fixed-rate mortgage?