Many homeowners dream of paying off their mortgages early. By making just one extra mortgage payment per year, you can significantly reduce the overall term of your loan and save thousands of dollars in interest payments.
How does making an extra mortgage payment work?
When you make an extra mortgage payment, the additional funds go directly towards the principal balance of your loan. This means that you are paying off the outstanding balance faster than your regular monthly payments would alone.
The benefits of making an extra mortgage payment
Making an extra mortgage payment each year has several benefits:
- Shorter loan term: By making additional payments towards your principal balance, you can shave off several years from your mortgage term. For example, if you have a 30-year mortgage, making one extra payment annually can reduce it to approximately 25 years.
- Save on interest: Since your principal balance decreases faster, you end up paying less interest over the life of the loan. This can result in substantial savings, especially if you have a high-interest loan.
- Equity buildup: By paying down your mortgage faster, you build equity in your home quicker. Having more equity can provide you with more financial security and future borrowing options.
- Peace of mind: Paying off your mortgage ahead of schedule brings a great deal of peace of mind. You’ll have one less financial obligation and can focus on other financial goals, such as saving for retirement or college tuition.
How to make an extra mortgage payment
There are several strategies you can use to make one extra mortgage payment per year:
- Add an extra payment each month: Divide your monthly mortgage payment by 12 and add that amount to your regular payment each month. This will result in one additional payment per year.
- Make a lump sum payment: If you receive a windfall such as a work bonus, tax refund, or inheritance, consider using a portion of it to make an extra payment towards your mortgage.
- Bi-weekly payments: Instead of making monthly payments, switch to bi-weekly payments. Since there are 52 weeks in a year, you end up making 26 half-payments, which is equivalent to 13 full payments. This strategy allows you to make an extra payment without straining your budget.
- Refinance to a shorter term: If your financial situation allows, consider refinancing your mortgage to a shorter term, such as a 15-year loan. This will automatically result in higher monthly payments, forcing you to pay off your mortgage faster.
Considerations before making extra mortgage payments
Before deciding to make extra mortgage payments, consider the following:
- Emergency fund: Ensure you have enough savings for emergencies before allocating additional funds towards your mortgage. It’s important to have a safety net in place to cover unexpected expenses.
- Other debts: Evaluate your overall financial picture. If you have high-interest consumer debt, such as credit cards or personal loans, it may be more beneficial to pay them off first before focusing on extra mortgage payments.
- Future goals: Assess your long-term goals and priorities. If you have other savings goals, such as retirement or education expenses, consider if allocating funds towards those goals may outweigh the benefits of making extra mortgage payments.
Remember, making an extra mortgage payment is an individual decision that depends on your financial situation and goals. It’s important to carefully evaluate the potential benefits and drawbacks before committing to this strategy.
By making one extra mortgage payment a year, you can save money, reduce your loan term, and gain greater financial freedom. Consider implementing this strategy and watch as you get closer to paying off your mortgage sooner than you ever thought possible!
Frequently Asked Questions On If I Make 1 Extra Mortgage Payments A Year: Unlock Massive Savings
How Does Making Extra Mortgage Payments Affect My Loan?
Making extra mortgage payments can help reduce the principal balance of your loan, resulting in less interest accrued over time and an earlier payoff date.
What Are The Benefits Of Making An Extra Mortgage Payment Each Year?
By making one extra mortgage payment each year, you can potentially save thousands of dollars in interest payments and shorten the term of your loan.
Will Making An Extra Mortgage Payment Lower My Monthly Mortgage Payments?
While making extra mortgage payments won’t directly lower your monthly payments, it can help you pay off your loan faster, resulting in fewer total payments overall.
How Much Money Can I Save By Making One Additional Mortgage Payment Each Year?
The amount you can save by making an extra mortgage payment each year depends on factors such as your loan amount, interest rate, and remaining term. However, it can add up to substantial savings over time.
Ismail Hossain is the founder of Law Advised. He is an Divorce, Separation, marriage lawyer. Follow him.
Leave a Reply