You might be able to reduce the amount of interest you pay over the course of your mortgage by rounding up your monthly principal and interest payment or by opting for biweekly payments instead of monthly. Instead of paying off a high-interest credit card or increasing your emergency savings, you might want to think about whether making extra mortgage payments is the best use of your money.
Mortgages are designed to be repaid over a specific period of time; some typical durations are 30 years and 15 years. Your monthly payments not only pay interest but also lessen your principal (the amount you borrowed).
However, this does not imply that your loan must last for 30 years. If you sell your house, the proceeds might be used to pay off your mortgage. Or, if you determine that you can afford to pay more on your mortgage each month than the standard monthly payment, you may do so. This method might help you pay less interest over time, but it’s important to take into account all of your financial obligations, such as credit cards, student loans, auto loans, and emergency savings.
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Key takeaway
You might be able to reduce the amount of interest you pay over the course of your mortgage by rounding up your monthly principal and interest payment or by opting for biweekly payments instead of monthly. Instead of paying off a high-interest credit card or increasing your emergency savings, you might want to think about whether making extra mortgage payments is the best use of your money.
Mortgages are designed to be repaid over a specific period of time; some typical durations are 30 years and 15 years. Your monthly payments not only pay interest but also lessen your principal (the amount you borrowed).
However, this does not imply that your loan must last for 30 years. If you sell your house, the proceeds might be used to pay off your mortgage. Or, if you determine that you can afford to pay more on your mortgage each month than the standard monthly payment, you may do so. This method might help you pay less interest over time, but it’s important to take into account all of your financial obligations, such as credit cards, student loans, auto loans, and emergency savings.
How paying extra on your mortgage may help you pay less interest over time
Learn how making extra payments on your mortgage could help you pay off your mortgage faster by watching the video and reading the information below.
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Transcript: How paying extra on your mortgage may help you pay less interest over time
[Title of video: How making extra mortgage payments could result in you paying less interest over time]
[of two individuals in front of a “Sold” sign outside a home]
Your financial situation may change at some point after you buy a home. You might receive a raise, increasing your monthly income, or you might pay off a credit card, lowering your monthly expenses. When this occurs, you might think about paying more than your monthly mortgage bill in order to pay off your debt and increase the value of your home more quickly.
[s of a woman at her kitchen table writing on a notepad, a man looking at his credit card, and a woman sitting in front of her computer]
You may be able to lower the total amount of interest you pay over the course of your mortgage by making additional payments on your principal mortgage balance, which is the sum you borrowed.
[of an icon of a house and an up arrow, then an icon of a percentage symbol and a down arrow]
Although it’s important to keep in mind, your mortgage may have a lower interest rate than other forms of debt, like credit cards. Therefore, increasing your mortgage payment may not always be the best use of your extra cash; instead, you may want to pay off other credit accounts with higher interest rates or increase your emergency fund.
[A house and a stack of dollars are depicted on either side of the icon. House then transforms into a wallet with an exposed credit card and into a piggy bank with coins falling into it.
But what options are there if you do choose to try to pay off your mortgage more quickly?
Meet Ryan and Amber. They each took out a $194,000, 30-year mortgage with a fixed rate of 4% to buy a house, with a $926 monthly principal and interest payment.
[Icons of a man and a woman]
[Icon of a home]
We’re leaving out potential supplementary expenses like private mortgage insurance, taxes, and homeowners insurance for this fictitious scenario. We also assume that they decide on these options at the very beginning of their mortgage loan and stick to them going forward.
Here are two straightforward strategies you can use to potentially cut your mortgage interest costs overall. Let’s examine how Ryan and Amber’s total interest payments will vary based on how they choose to make their payments.
Scenario 1: Paying more than is required each month.
[Animated numbers below the icons of a man and woman show how much they pay each month]
Ryan will pay his $926 regular monthly payment. Amber, however, will round up her payment to $1,000 per month from the very first month and stick to that amount for the entire term of her mortgage. The additional payment she makes is added to the mortgage’s principal.
This doesn’t cost Amber a lot each month. However, it shortens the time it takes her to pay off her mortgage by about four years and prevents her from paying nearly $21,000 in interest.
[of a bar graph displaying the total interest each person has paid] For Ryan, it is $139,425. For Amber it is $118,623].
[Text on screen demonstrates that Amber is saving $20,802 less in interest than Ryan]
Scenario 2: Make biweekly payments instead of monthly payments.
Again, Ryan is making his payment of $926 every month. Amber, on the other hand, decides to make a half payment of $463 every two weeks at the start of her loan term, ensuring that her second payment of each month always arrives before the due date.
[Animated numbers below the icons of a man and woman show how much they pay each month. [Followed by a calendar icon displaying Amber making 26 biweekly payments and Ryan making 12 monthly payments.]
Amber ultimately pays one extra monthly payment annually by making 26 biweekly payments.
Amber will pay off her mortgage in about 26 years rather than Ryan’s 30 if she continues to do this each month, saving nearly $21,000 in interest over time.
[of a bar graph displaying the total interest each person has paid] For Ryan, it is $139,425. For Amber it is $118,596].
[Text on screen demonstrates that Amber is saving $20,829 less in interest than Ryan]
Any additional payments you can make toward the mortgage’s principal may enable you to eventually pay less interest overall. However, making a consistent effort, beginning with your first mortgage payment, can really help you advance.
[of a couple conversing with a mortgage lender]
Check with your lender to see if there are any requirements that could result in fees or penalties for any of these choices before you begin making additional loan payments. Additionally, you might need to specify that they add any additional payments to the mortgage’s principal.
[of a woman using her laptop in her living room]
Extra income is always a nice feeling. Making the most of that extra money can be a great way to improve your financial situation and may assist you in achieving other life goals.
A Wells Fargo home mortgage consultant might be able to explain your options to you and help you choose the best one. ].
[Text on screen: myfirsthome.wf.com]
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There are other options besides the ones shown in the video if you want to make extra mortgage payments. For instance, if you receive a tax refund, you could pay your mortgage in full at once and request that the money be applied to the principal. Additionally, you can combine scenarios by selecting biweekly payments and then converting that amount to a whole number.
Paying extra on your mortgage loan may have other advantages.
Remember that it’s crucial to strike a balance between your financial priorities. Think about the following before deciding to pay off your mortgage early:
As you apply for a mortgage, your home mortgage advisor can assist you in understanding your payment options. Discuss your objectives with them to determine the approach that will work best for you.
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Call 1-800-357-6675 from 6 am to 10 pm on weekdays and 8 am to 2 pm on weekends in Central Time.
Before looking to refinance your current mortgage loan if you are a service member who is currently on active duty, please speak with your legal counsel about the relief you may be eligible for under the Servicemembers Civil Relief Act or applicable state law. Equal Housing Lender.
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FAQ
How do I pay off my Wells Fargo mortgage?
If you’d like, you can pay at a Wells Fargo branch in person, by mail, or online. Automated phone payments. Call us at 1-800-357-6675 any time, day or night, seven days a week.
How do I get my Wells Fargo payoff?
- Online. Get a payoff quote after logging in, choosing your auto loan from the Account Summary.
- Account Statement. On your monthly account statement, you can view your payoff amount and daily interest.
- Phone. To receive an automated payoff quote or to speak with a representative, contact us at 1-800-289-8004.
How do I pay off my mortgage balance?
- Refinance your mortgage. …
- Make extra mortgage payments. …
- Make one extra mortgage payment each year. …
- Round up your mortgage payments. …
- Try the dollar-a-month plan. …
- Use unexpected income.
What happens after you fully pay off your mortgage?
Get mortgage documents: You’ll receive a canceled promissory note, an updated deed of trust, and a certificate of satisfaction from the mortgage company. These documents prove that your mortgage is paid off. Save them in a secure location.