Is it Wise to Make Additional Principal Payments on Your Mortgage
Is it Wise to Make Additional Principal Payments on Your Mortgage
There are a couple of different ways of doing this that will allow you to take up to five years off the length of your loan. But is this strategy for everyone? Before you decide, let's take a look at different ways to pay extra principal on your mortgage.
Make Bigger Monthly Payments
Paying extra dollars toward the principal on your mortgage can pay off in terms of time and money in the end. By simply paying an extra $20, $25, or however much you can afford toward the principal, you will be reducing not only the principal balance on your mortgage, but also the interest you are charged on that principal balance. Because of how home mortgages are amortized, you can shave time and interest off your loan if you pay extra towards your principal in the first year after purchasing your home.
Make Bi-Weekly Mortgage Payments
Another strategy commonly used to pay home loans off early is to make bi-weekly payments instead of monthly ones. Because there are 52 weeks in a year and only 12 months, a bi-weekly payment will in effect result in one extra mortgage payment per year. On a 30-year mortgage, this strategy can help you pay your loan off almost three years early.
Shouldn't Everyone Be Doing It?
Simply put, the answer is no. These strategies for paying your mortgage off early are only wise if you intend to follow through with paying off the entire mortgage. That is, if you intend to stay in your home (or keep your home) for a length of time that is equal to or greater than the life of your loan. If there is a possibility that you will want to sell the home before the entire mortgage is paid off, then there is a possibility that you will receive no credit or benefit from all the extra money you paid into the mortgage.
If, on the other hand, you are positive that you will stay in the home at least until it is completely paid off, then it would be wise to make additional principal payments. If possible, try to put yourself on a bi-weekly mortgage payment schedule and also pay a few extra dollars toward the principal with each payment.
Make sure you find out from your mortgage lender if they impose any early payment penalties. Also, make sure the extra funds you pay are designated toward the principal balance of the loan. Depending on how much extra you are able to pay on the principal, and also on how early you start paying extra on the principal, you can considerably reduce the length of your loan and the interest you pay on it.
Terry Mitchell is the owner and operator of Foxrater - http://www.foxrater.com - the web's top free insurance quote site. It allows people to enter their zip code and compare the rates of auto, homeowners, health, and life insurance companies doing business in their area.