Buying a home is an exciting milestone, but paying off your mortgage can seem like a never-ending task. However, there’s a simple strategy that can help you pay off your mortgage faster and save thousands of dollars in interest over the life of your loan. It involves making three extra mortgage payments per year.
The Power of Three
By making three additional mortgage payments each year, you can significantly reduce the length of your mortgage and the total amount of interest paid. The concept is straightforward – instead of making the typical 12 monthly payments, you make 15 payments each year.
To illustrate the power of this strategy, let’s consider an example. Say you have a 30-year fixed-rate mortgage of $300,000 at an interest rate of 4%. Making 12 monthly payments for the entire term of the loan would result in total interest payments of approximately $215,609. However, by making three extra payments each year, you can pay off your mortgage in just 23 years and save over $42,000 in interest.
How It Works
There are a few different ways to implement the three extra mortgage payment strategy. Here are three popular methods:
- Add a little extra each month: You can simply increase your monthly mortgage payment by 1/12th of your principal and interest. For example, if your monthly payment is $1,500, you would add an extra $125 each month.
- Make bi-weekly payments: Divide your monthly mortgage payment in half and make a payment every 2 weeks. By the end of the year, you will have made 26 half-payments or 13 full payments instead of 12.
- Create a separate savings account: Set up a separate savings account specifically for your extra mortgage payments. Each month, deposit 1/12th of your principal and interest payment into that account. At the end of the year, you will have enough funds to make the three additional payments.
The Benefits
Implementing the three extra mortgage payment strategy brings several benefits:
- Pay off the mortgage faster: By making three additional payments each year, you will shorten the length of your mortgage term. This means that you will own your home outright sooner than anticipated.
- Save on interest: Making extra payments reduces the principal balance faster, resulting in less interest paid over time. The savings can be substantial, as shown in our earlier example.
- Build equity quicker: As the principal balance decreases faster, you build equity in your home at a more rapid pace. This can provide financial security and open up opportunities for future investments.
Considerations
Before implementing the three extra mortgage payment strategy, it’s important to consider a few factors:
- Review your budget: Evaluate your budget to ensure that you have sufficient funds to make the extra payments each year without sacrificing other important financial obligations.
- Communicate with your lender: Contact your mortgage lender to confirm how you want the extra payments applied. Make sure they understand your intention to pay down principal and not prepay future payments.
- Check for prepayment penalties: Some mortgages come with prepayment penalties, which can negate the benefits of making extra payments. Review your loan terms or consult with your lender to avoid any penalties.
Frequently Asked Questions For 3 Extra Mortgage Payments Per Year: Unlock Your Homeownership Journey!
How Can Making 3 Extra Mortgage Payments Per Year Benefit Me?
Paying an additional three mortgage payments each year can help reduce the principal and the overall interest paid on your loan, potentially saving you thousands of dollars in the long run.
Will Making Extra Mortgage Payments Reduce My Loan Term?
Yes, making extra mortgage payments can help shorten the length of your loan, potentially allowing you to pay off your mortgage early and save on interest.
Is It Financially Feasible For Me To Make Extra Mortgage Payments?
Making additional mortgage payments is a financial strategy that can suit many homeowners, helping to reduce the interest paid over the loan’s term and potentially saving substantially on the total mortgage cost.
Can I Make 3 Extra Mortgage Payments In A Year Without Penalty?
Most mortgage agreements allow for extra payments without penalties, but it’s important to review your specific mortgage terms to ensure this option is available to you without incurring additional fees.
Conclusion
Making three extra mortgage payments per year is a simple and effective way to accelerate your journey towards homeownership. By following this strategy, you can pay off your mortgage faster, save money on interest, and build equity in your home more quickly.
Remember, it’s important to evaluate your financial situation and discuss your strategy with your mortgage lender to ensure that implementing this payment strategy aligns with your goals and circumstances.
Ismail Hossain is the founder of Law Advised. He is an Divorce, Separation, marriage lawyer. Follow him.
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