When it comes to paying off your mortgage early, there are several strategies you can employ to save both time and money. One such strategy that has gained popularity is making one extra mortgage payment per year.
The Power of One Extra Payment
Making just one extra mortgage payment per year can have a significant impact on your mortgage payoff timeline. By doing this, you can reduce the number of years it takes to pay off your mortgage, saving you thousands of dollars in interest over the life of the loan.
Let’s take a closer look at the power of one extra payment using a hypothetical scenario:
| Loan Details | Without Extra Payment | With Extra Payment |
|---|---|---|
| Loan Amount | $200,000 | $200,000 |
| Interest Rate | 4% | 4% |
| Loan Term | 30 years | 29 years |
| Monthly Payment | $955 | $955 |
| Total Interest Paid | $143,739 | $135,602 |
In this example, by making one extra mortgage payment of $955 per year, you can reduce your mortgage term by 1 year and save $8,137 in interest.
How to Make the Extra Payment
Now that you understand the benefits of making an extra mortgage payment per year, let’s discuss a few ways you can incorporate this into your financial plan:
- Set a clear goal: Determine the exact amount you want to contribute as an extra payment each year. It can be a specific dollar amount or a percentage of your monthly payment.
- Choose the timing: Decide when you want to make the extra payment. You can either make a lump sum payment at the beginning of the year or spread it out over the course of the year by adding a little extra to each monthly payment.
- Create a budget: Adjust your monthly budget to accommodate the extra payment. Cut back on unnecessary expenses or look for ways to increase your income to free up the funds needed.
- Automate the process: Set up automatic transfers from your bank account to your mortgage lender for the extra payment amount. This ensures that you won’t forget or spend the money elsewhere.
By following these steps, you can easily integrate the extra mortgage payment into your financial routine, making it a habit that helps you reach your goal of becoming mortgage-free sooner.
Additional Considerations
Before implementing the strategy of making one extra mortgage payment per year, it’s essential to consider a few factors:
- Review your mortgage terms: Ensure there are no prepayment penalties or restrictions on making additional payments. Some lenders may limit the number of extra payments you can make per year.
- Verify how the additional payment is applied: Contact your mortgage lender to confirm how they apply the extra payment. It’s important to specify that the additional amount should be applied to the principal balance rather than future interest.
- Evaluate your overall financial situation: While making an extra mortgage payment can be beneficial, it’s crucial to assess your overall financial position. Consider other debts, emergency savings, and retirement contributions to ensure you’re making the best use of your funds.
Remember, making one extra mortgage payment per year is just one strategy to expedite your mortgage payoff. Discuss your financial goals with a professional to determine the best approach for your specific situation.
In conclusion, making one extra mortgage payment per year is a simple and effective way to save time and money on your mortgage. By implementing this strategy, you can reduce your mortgage term, save on interest, and ultimately achieve the goal of becoming mortgage-free sooner.
Frequently Asked Questions On If I Make 1 Extra Mortgage Payment A Year : Boost Financial Freedom
How Does Making One Extra Mortgage Payment A Year Benefit Me?
Making one extra mortgage payment a year can help you pay off your mortgage faster, save thousands in interest, and own your home sooner.
Will Making An Extra Mortgage Payment Lower My Monthly Payments?
No, making an extra mortgage payment will not lower your monthly payments. However, it will help you pay off your mortgage sooner and save on interest.
Can I Make The Extra Mortgage Payment At Any Time During The Year?
Yes, you can make the extra mortgage payment at any time during the year. It’s up to you to decide when to make the additional payment.
Do I Need To Notify My Lender Before Making The Extra Mortgage Payment?
No, you typically don’t need to notify your lender before making an extra mortgage payment. However, it’s always a good idea to check with your lender to ensure there are no specific requirements or restrictions.
Ismail Hossain is the founder of Law Advised. He is an Divorce, Separation, marriage lawyer. Follow him.
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