We know that it's hard to save money when your budget is already tight. That's why we're so excited about this easy way to save thousands of dollars over the life of your mortgage. The next time you have a big check coming in, like from a 401(k) distribution or other investment sale, consider making an extra mortgage payment instead of spending it on something else. You'll be able to pay off your mortgage faster and have more cash left over for retirement!
One extra mortgage payment per year can be a great way to pay off your mortgage faster.
One extra mortgage payment per year can be a great way to pay off your mortgage faster. Making an additional payment each year is also a great way to build good credit history and get better terms on future loans.
Compound interest is powerful, and it's the reason why you should try to pay off your mortgage as quickly as possible. One extra mortgage payment per year can save you hundreds or even thousands of dollars in interest over the life of your loan.
Mortgage Payoff Calculator - Ramsey (ramseysolutions.com)
Even if you can only afford to make an extra mortgage payment once every few years, it's worth it.
The longer you wait to make an extra mortgage payment, the more money you'll lose. In fact, if you can only afford to make an extra mortgage payment once every few years, it's still worth it.
The reason is compound interest: Every month that goes by without making extra payments means another month where your principal balance grows and grows without being reduced by anything other than the monthly interest charge on top of it all (which doesn't help). By making just one additional $1,000 payment per year over 30 years at 4% interest rates - your typical home loan rate - you'd save more than $84K!
When is the best time to make the payment?
Anytime! However, the best time to make an extra mortgage payment is when you get a tax refund or when you have a big check coming in, like from a 401(k) distribution or other investment sale. You can have a plan for the money before you receive it and then the "extra" money goes to work for you immediately.
If you're getting a refund, there's no reason not to put it toward your loan. That way, the money won't just be sitting in your bank account while the interest keeps adding up on your debt. When you get a big check from selling stocks or bonds or other investments (or even some of the money left over after paying off all those student loans), take at least part of that windfall and apply it toward paying off debt -- specifically toward paying down credit card balances first!
You can use this strategy to pay off your mortgage faster and save yourself thousands in interest. It doesn't take much effort - just one extra payment per year, and the payoff is huge. So why not give it a try?