Paying More Towards Your Mortgage

A common known idea but seldom used is to pay more towards your loan each payment. By paying more towards your loan you would be able to cover the interest being charged you (the bad part) and you will be able to pay more towards the loan (the good part). Once you have made a larger payment during the month the next following month less interest will encrue meaning more of your payment will go towards the loan and by doing this method you will allow yourself to pay off your loan quicker, save thousands and thousands in interest an years of payments.

Here is an example:

You pay on a mortgage of $150,000; 6.25% interest at a payment of $923.58 for 30 years (360 payments).
If you pay $1000 dollars instead of $923 you will have the loan paid off in 293 payments. This is a 67 payment decrease or in other words a savings of about $61,879 and over 5 years of payments.

By increasing the payment to $1100, just a simple $100 more the loan will be paid off in 239 payments for a savings of about $111,753 and over 10 years in payments.

Another way to look at the money you would pay extra is you are making a 6.25% return on that money and for many people 6.25% is a better return than they may receive in a CD or their IRA.

Pros: With relatively low amount of money years and years can be knocked off the time it takes to pay off the property. Thousands of dollars in interest are also saved which again can be put to better uses later. The money paid can also be thought of as making a return on the money as well.

Cons: Where do you get the extra money? The money to pay a larger payment may be hard to come by. If you are strapped in financing already it may be difficult to pay a little more towards the property.