When it comes to paying off your mortgage, every little bit helps. While a typical mortgage is structured to be paid off over a 30-year period, making just the minimum required monthly payments will result in a significant amount of interest paid over the life of the loan. However, there is an easy strategy that can potentially save you thousands of dollars in interest and shave off years from your mortgage term – making two extra payments a year.
How it Works
By making just two additional mortgage payments each year, you can accelerate the process of paying off your loan. Instead of the standard 12 monthly payments, you’ll be making 26 payments in total. These extra payments go directly towards reducing the principal balance and therefore the interest charged over time.
The Benefits
The benefits of making two extra mortgage payments a year are twofold:
- Reduced Interest: With every additional payment, you are reducing the outstanding balance of your mortgage sooner, resulting in less interest paid over the life of the loan. By paying down the principal faster, you are effectively shortening the term of your loan.
- Build Equity Quickly: By accelerating your mortgage payments, you are building equity in your home at a faster pace. Equity is the difference between the market value of your home and the outstanding mortgage balance. The more equity you have, the more financial security you possess.
Tips for Implementing this Strategy
Here are some tips to help you successfully implement the strategy of making two extra mortgage payments a year:
- Budget Your Finances: Evaluate your monthly budget to determine if you have the flexibility to make two extra mortgage payments a year. Cutting back on discretionary expenses can free up funds for these additional payments.
- Split Payments: Rather than making one large extra payment, consider splitting it into two payments per year. This can make the additional payments more manageable within your budget.
- Automate Payments: Set up an automated payment plan with your mortgage lender for the extra payments. This ensures that the payments are made consistently and on-time.
- Consult with Your Lender: Communicate with your lender to understand the terms and conditions associated with making extra payments. Some lenders may have restrictions or fees related to additional payments.
- Track Your Progress: Keep track of how much principal you’ve paid off over time and how many years you have shaved off your mortgage term. This will motivate you to continue with your strategy.
Considerations
While making two extra payments a year can save you a significant amount of money in interest and help you pay off your mortgage faster, it’s important to consider your overall financial situation before committing to this strategy. Here are a few considerations to keep in mind:
- Emergency Fund: Make sure you have an emergency fund set aside before allocating extra funds towards your mortgage payments. Having a financial safety net is crucial for unexpected expenses.
- Other Debts: Assess your other debts, such as high-interest credit cards or student loans. If you have other loans with higher interest rates, it may be more advantageous to put the extra funds towards paying off those debts first.
- Future Goals: Consider your long-term goals. If you have other financial goals, such as saving for retirement or college education, it may be more beneficial to allocate funds towards those goals rather than paying off your mortgage faster.
Frequently Asked Questions On 2 Extra Mortgage Payments A Year : Secure Your Financial Future
Can I Make Extra Payments On My Mortgage?
Absolutely! Making extra payments on your mortgage is an excellent strategy to pay off your loan faster and save money on interest. It’s important to check with your lender to ensure there are no prepayment penalties.
How Many Extra Payments Should I Make Each Year?
The general recommendation is to make two extra mortgage payments per year. By doing this, you can significantly reduce the time it takes to pay off your loan and potentially save thousands of dollars in interest payments.
Will Making Extra Payments Affect My Credit Score?
No, making extra mortgage payments should not have a direct impact on your credit score. However, paying off your mortgage sooner can improve your overall creditworthiness as it decreases your debt-to-income ratio.
Should I Save Or Make Extra Mortgage Payments?
It depends on your financial situation. While it’s essential to have emergency savings, making extra mortgage payments can provide long-term financial benefits by reducing interest and paying off your home sooner.
Conclusion
Making two extra mortgage payments a year is a simple strategy that can have a significant impact on your financial future. By reducing interest expenses and building equity faster, you can save money and achieve homeownership freedom sooner. However, it’s important to carefully evaluate your financial situation and consult with your lender before implementing this strategy. With discipline and planning, you can be on the path to becoming mortgage-free.
Ismail Hossain is the founder of Law Advised. He is an Divorce, Separation, marriage lawyer. Follow him.
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