If you’re thinking of making extra payments on your mortgage in order to more quickly eliminate your house note and become debt free, you may be wondering: “How much money will I save or how many years will I knock off my mortgage if I send in extra payments to my bank?”
Unfortunately, this isn’t a calculation you can do in your head, since it involves the complex process of amortizing a loan over decades.
So one resource I would recommend is Bankrate.com and their home mortgage calculator. You can enter a few bits of information, and this calculator will tell you exactly how much you’ll pay over time – in interest and principal – on a given mortgage.
You can also play with Bankrate’s calculator to see the impact of adding extra payments each month, sending your lender one additional mortgage payment each year, or making a one-time payment at a specific time.
Many lenders allow you to make bi-monthly payments on your home loan; doing bi-monthly payments can shave about 8 years off of a typical 30-year mortgage.
Just be aware that your lender may charge you a fee to get set up with bi-monthly payments.
If you don’t want to pay the bank’s fee, you can also send in payments on your own reducing your mortgage.
And you can do whatever suits your budget.
Some people send in one extra mortgage payment once a year. Others choose to add a fixed amount, say $200 or $300 additional cash on top of their normal monthly mortgage. And some homeowners just make payments every two weeks on their own.
To be on the safe side, when you make an extra payment, send a written notice to your mortgage company indicating that you want the payment put against your principal balance.
That way, there’ll be no confusion about what the “extra” money is for and how it should be applied.