Did you know that you can cut years off of your mortgage and save thousands of dollars? By making one additional principal payment each year on your 30 year fixed rate mortgage, you can cut approximately 8 years off of your loan and save tens of thousands of dollars.
Have you heard about bi weekly mortgage payments? These are when your mortgage payment amount is divided in half and you make the payment every 2 weeks, in effect adding one additional payment to your loan by the end of the year. Be careful though, often this costs a fee to set up and the lending institution charges a monthly fee to process the payment. You can create the same effect by making an additional mortgage payment each year. (This figure may vary depending on the type of your loan.)
Are you thinking that you just don’t have the extra money to mail in an additional principal payment each year? Well, try this… divide your the principal amount of your monthly mortgage payment by 12. Every month mail the additional 1/12 payment amount in with your monthly payment. If your monthly mortgage payment is $1200, $1200 divided by 12 = $100. Every month mail in $1200 + $100 to the mortgage company. At the end of the year, you will have made an additional principal payment.
It is advisable to send the extra principal payment to your lender in a separate check. It is important that you specify that the extra funds be used as a principal reduction. Check your online statement regularly to be sure this is being done.
Before starting a plan like this, be certain that your loan has no prepayment penalties.
A true analysis of your savings can be done by using a mortgage calculator and running an amortization schedule to determine which program will provide the greatest benefit to you. Check with your lender for additional information.
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