If you pay an additional $50 per month, you will save $21,298.29 in interest over the life of the loan and pay off your loan two years and four months sooner than you would have.
Most mortgages provide you the option to pay extra on your principal if you wish. You could, for example, pay an extra $50 or $100 each month, or make one extra mortgage payment a year. The benefit in taking this approach is that it will, over the life of the loan, reduce the total amount of interest you pay.
Options to pay off your mortgage faster include:
Bi-weekly payments instead of monthly payments. Making one additional monthly payment each year. Refinance with a shorter-term mortgage.
As a general rule of thumb, making one extra mortgage payment per year at the start of your 30-year mortgage can shorten the term by approximately four to five years. You could potentially pay off the mortgage and own the home outright in 25 to 26 years instead of 30.
If you pay $100 extra each month towards principal, you can cut your loan term by more than 4.5 years and reduce the interest paid by more than $26,500. If you pay $200 extra a month towards principal, you can cut your loan term by more than 8 years and reduce the interest paid by more than $44,000.
Even one or two extra mortgage payments a year can help you make a much larger dent in your mortgage debt. This not only means you'll get rid of your mortgage faster; it also means you'll get rid of your mortgage more cheaply. A shorter loan = fewer payments = fewer interest fees.
By making two extra mortgage payments a year, you're prepaying principal that would otherwise accrue interest over the life of the loan. Plus, those payments are accelerating repayment because they're payments you would have made anyway.
Making extra payments of $500/month could save you $60,798 in interest over the life of the loan. You could own your house 13 years sooner than under your current payment. These calculations are tools for learning more about the mortgage process and are for educational/estimation purposes only.
Making additional principal payments reduces the amount of money you'll pay interest on – before it can accrue. This can knock years off your mortgage term and save you thousands of dollars.
The 10/15 rule
If you can manage to pay 10% of your mortgage payment every week (in addition to your usual monthly payment) and apply it to the principal of your loan, you can pay off your 30-year mortgage in just 15 years.
If you choose to pay extra on your monthly payment, you are paying a little more principal and a little less interest than you did on the previous payment, meaning you could pay off the loan slightly faster in the long run.
Ideally, you want your extra payments to go towards the principal amount. However, many lenders will apply the extra payments to any interest accrued since your last payment and then apply anything left over to the principal amount. Other times, lenders may apply extra funds to next month's payment.
Bottom line. If done right, making biweekly mortgage payments leads to less interest paid over the life of your loan, saving you money and whittling your balance down sooner. However, you must confirm that the extra payments are being applied to the principal and that you're not subject to prepayment penalties.
Making additional principal payments will shorten the length of your mortgage term and allow you to build equity faster. Because your balance is being paid down faster, you'll have fewer total payments to make, in-turn leading to more savings.
If you make an extra monthly payment of $2,098 each December, you'll pay off your 30-year mortgage five years ahead of schedule and net about $87,375 in interest savings in the process.
By adding $300 to your monthly payment, you'll save just over $64,000 in interest and pay off your home over 11 years sooner.
Conventional wisdom, according to Buch and Rhoda (1999), suggests using the “2-2-2 rule” as a criterion for refinancing: “Refinancing may make sense if the interest rate potentially available to you is 2 percent less than you are now paying, if you plan to stay in your home for more than two years, and if the ...
There can be some real benefits—both financial and emotional—to prepaying your mortgage. You reduce your total interest payments, you reduce your monthly spending needs, and you have the security of a predictable financial benefit and the psychological benefits of knowing you are out of debt.
Many people choose to schedule their mortgage payment on the first of the month to coincide with their monthly paycheck. This can make it easier to budget and ensure that the payment is made on time.
What income is required for a 200k mortgage? To be approved for a $200,000 mortgage with a minimum down payment of 3.5 percent, you will need an approximate income of $62,000 annually.
This commonly used guideline states that you should spend no more than 28 percent of your income on your housing expenses, and no more than 36 percent on your total debt payments. If you're earning $100,000 per year, your average monthly (gross) income is $8,333. So, your mortgage payment should be $2,333 or less.