Here's a simple trick to significantly reduce the length of your mortgage and save you thousands of dollars over the course of your loan: Make additional payments that apply to the loan principal. People pay extra in several different ways. Paying a single additional full payment once a year is perhaps the easiest to track. Of course, some folks will not be able to afford such a large extra payment, so splitting an additional payment into twelve additional monthly payments works too. Finally, you can pay a half payment every other week. Each of these options yields different results, but each will significantly shorten the duration of your mortgage and lower the total interest you will pay over the life of the loan.
It may not be possible for you to pay extra every month or even every year. Keep in mind that most mortgage contracts will permit you to pay extra on your principal at any point during repayment. Whenever you come into unexpected money, you can use this rule to pay a one-time additional payment toward mortgage principal.
If, for example, you were to receive a very large gift or tax refund three years into your mortgage, you could apply a portion of this money toward your mortgage loan principal, which would result in significant savings and a shorter loan period. Unless the mortgage loan is very large, even a few thousand dollars applied early can produce huge benefits over the life of the loan.
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