![]() By paying more principal each month, you incrementally lower the principal balance and interest charged on it. Since your interest is calculated on your remaining loan balance, making additional principal payments every month will significantly reduce your interest payments over the life of the loan. So what is the effect of paying extra principal on a mortgage? 1. Refinance your loan today! FIND A LOAN PROGRAM “If you have an extra mortgage payment plan that will end your mortgage within a timeframe that lets you enjoy five years or longer of mortgage-free living, that makes more sense,” says Sullivan. However, that only happens after a certain (and still long) period of time. Of course, paying additional principal does, in fact, save money since you’d effectively shorten the loan term and stop making payments sooner than if you were to make the minimum payment. Additional payments to the principal just help to shorten the length of the loan (since your payment is fixed). ![]() Two benefits of making extra mortgage paymentsĪs you may know, making extra payments on your mortgage does NOT lower your monthly payment. So how do you know if it makes sense for you to begin paying a little extra principal each month on your mortgage? It depends on your financial situation and how you manage your discretionary funds. ![]() While many agree the thrill of living without a mortgage is liberating, you can accomplish that in more ways than one. You will tie up that extra monthly payment and never realize the benefit of it." “For example, paying an extra $200/month on your mortgage to knock it down from 30 years to 25 years in a house you only imagine living in for another five years does not help you. “Sometimes it’s good to make extra mortgage payments, but not always,” says Kristi Sullivan of Sullivan Financial Planning in Denver, Colorado. Yet, while the thought of paying down your mortgage faster and living in your home without a mortgage sounds great, there can be reasons why making extra payments toward the principal might not make sense. After settling into a home or finding a little more financial flexibility, many homeowners begin asking, “should I make extra mortgage payments?” After all, making extra payments can save on interest costs and shorten the length of your mortgage bringing you that much closer to owning your home outright. ![]()
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