Imagine the feeling of paying off your mortgage years earlier than expected, while also saving a significant amount of money in interest. It may seem too good to be true, but by making just two extra mortgage payments a year, you can achieve this financial milestone. In this article, we will discuss the advantages of making two additional mortgage payments annually and how you can benefit from this strategy.
The Power of Two Extra Payments
Adding two extra mortgage payments each year may not seem like much, but over time, it can have a remarkable impact on your financial situation. By making these additional payments, you can:
- Reduce the overall interest paid
- Shorten the term of your mortgage
- Build equity in your home faster
1. Reduce The Overall Interest Paid
Extra mortgage payments directly reduce the outstanding principal balance, which in turn lowers the overall interest you will pay over the life of your mortgage. This means that you will be saving a substantial amount of money in interest payments in the long run. It’s like paying off your mortgage early, but without having to make higher monthly payments throughout the entire term.
2. Shorten The Term Of Your Mortgage
By making two extra mortgage payments per year, you can significantly reduce the length of your mortgage. For example, if you have a 30-year mortgage term, making two additional payments per year can shorten it to around 23 years. This means you’ll own your home outright much sooner than expected, allowing you to enjoy a mortgage-free lifestyle and the associated financial freedom.
3. Build Equity In Your Home Faster
Equity is the difference between your home’s market value and the outstanding balance on your mortgage. Making extra mortgage payments helps build equity in your home at a faster rate. As you pay down the principal balance, the equity in your home increases, giving you a valuable asset that can be utilized in various ways, such as refinancing or taking out a home equity loan.
How to Make Two Extra Mortgage Payments a Year
Implementing the strategy of making two extra mortgage payments per year is easier than you might think. Here are a few methods to consider:
- Bi-weekly Payments: Instead of paying your mortgage once a month, switch to paying it every two weeks. This approach allows you to make 26 half-payments per year, equaling 13 full payments, essentially making an extra payment annually.
- Round Up Your Payments: Round up your monthly mortgage payment to the nearest hundred dollars or any amount you can comfortably afford. For instance, if your monthly payment is $1,680, round it up to $1,700. Over time, these extra dollars will add up and contribute to reducing the principal balance and saving on interest.
- Use Extra Cash Windfalls: If you receive any unexpected extra money through bonuses, tax refunds, or gifts, consider using a portion of those funds to make an extra mortgage payment. This way, you’ll put the money to good use and make progress towards paying off your mortgage sooner.
Remember, it’s essential to communicate with your mortgage provider and specify that the excess payments are to be credited towards the principal balance. This ensures that your extra payments are applied correctly and contribute to the goals you have set.
Frequently Asked Questions Of If You Make Two Extra Mortgage Payment A Year: Save Thousands
How Can Making Two Extra Mortgage Payments A Year Benefit Me?
Making two extra mortgage payments a year can help you pay off your mortgage faster, save you thousands of dollars in interest, and build home equity quicker.
Is It Better To Make Two Extra Mortgage Payments Annually Or Increase The Monthly Payments?
Both options have their benefits, but making two extra mortgage payments annually can save you more money in the long run. It reduces the amount of interest paid and shortens the overall length of your mortgage term.
Will Making Two Extra Mortgage Payments Affect My Credit Score?
No, making two extra mortgage payments will not directly affect your credit score. However, it can improve your overall financial health and debt-to-income ratio, which can indirectly benefit your credit score.
How Can I Budget For Two Extra Mortgage Payments A Year?
Start by setting aside a portion of your income each month specifically for these extra payments. You can create a separate savings account or automate transfers to make it easier to save for the additional payments.
Conclusion
Paying off your mortgage earlier than expected can provide you with a tremendous sense of financial achievement and freedom. By making just two extra mortgage payments each year, you can significantly reduce the overall interest you’ll pay, shorten the term of your mortgage, and build equity in your home faster. Consider implementing this strategy, and you’ll be on your way to financial success and security!
Ismail Hossain is the founder of Law Advised. He is an Divorce, Separation, marriage lawyer. Follow him.
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