Should I Make Extra Mortgage Payments?

Extra mortgage payments often times will not save you money because lenders will charge a holding, or processing cost for making more than one payment in a month. To get around this particular fee, it can often time work to your advantage to add and additional fraction of your monthly payment onto the principal cost. Although this may seem small at the time, it ultimately will cut up to nine years (on a 30 year mortgage) off of your total term.

Looking at those nine years, it turns into nine year of saved interest on your mortgage. Look into the particular additional costs of your mortgage broker. If they will let you make biweekly payments, it could save you money if they don't require an additional fee.

A Real World Example

Here is how an extra mortgage can actually save you a ton of money:

Lets say you current mortgage was for $200,000 for 30 years at a 6% APR. Your mortgage monthly payment would be $1199.10. Let's say after five years you are doing pretty will with your income and decide you can afford to pay more, so you decide to start making two mortgage payments each month. So you make two $650 payments every two weeks. This will end up costing you $100 more dollars a month to $1,299. Since you have accelerated your payments you can actually save on your interest and shorten the length of your mortgage. In this case, by adding $100 a month, you shave almost four years and $31,582 off your mortgage.

Just like refinancing a mortgage will lower your monthly payment by extending the length of your loan, making second mortgage payments do the opposite. If you can afford to pay another $100 a month you can really save a lot of money in the long run. It is worth your money, if you can spare it, to shorten your mortgage and pay less interest. Don't you want $30,000 plus dollars saved in the future? It doesn't seem like to much to ask to come up with another $100 each month. If you can afford it, it becomes a great idea.