Here's a simple trick to significantly reduce the length of your mortgage and save thousands of dollars over the course of your loan: Make extra payments that are applied to the principal. Borrowers can accomplish this in various ways. Paying 1 extra full payment once per year may be the simplest to keep track of. If you can't pay an additional whole payment all at once, you can divide your payment by 12 and write a check for that additional amount monthly. Another popular option is to pay a half payment every other week. The result is you will make one extra monthly payment every year. These options differ a little in reducing the total interest paid and shortening payback length, but they will all significantly reduce the duration of your mortgage and lower the total interest you will pay over the duration of the loan.
Some borrowers can't manage extra payments. But remember that most mortgage contracts will allow additional principal payments at any time. Whenever you get some extra cash, you can use this rule to make an additional one-time payment toward principal.
If, for example, you receive an unexpected windfall three years into your mortgage, paying a few thousand dollars into your mortgage principal can reduce the period of your loan and save enormously on interest paid over the life of the mortgage loan. For most loans, even a modest amount, paid early in the loan period, could offer huge savings in interest and duration of the loan.
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