Making additional payments towards your mortgage balance can be a smart idea where it can save you thousands as well as shave off years on the loan duration. It is recommended that you do this on your own schedule rather than enrolling in an accelerated payment plan as those can cost you hundreds of dollars.
Here are some tips for paying down your mortgage earlier than anticipated.
Increase your monthly payment by one twelfth
The additional money that you are applying towards your balance is credited to the principal. The principal is the total amount that you owe less the interest. The majority of the payments that you make earlier on in the mortgage term are primarily interest. Therefore paying down the principal will save you a lot in the years ahead.
One extra annual payment
Making one extra payment can be easier if you get a yearly bonus o a nice tax refund. Take this money and apply it to the next mortgage payment towards the principal. This will help reduce the principal so you will be ahead of schedule and shorten the life of the loan.
Pay half of your regular payment every two weeks
Some mortgage lenders will allow you to do this at no extra cost while others will require that you enroll in a plan for a charge. Alternatively you can schedule this yourself on your own accounts. Try transferring these payments from checking to savings accounts, then pay the total amount to your lender when payment is due.
The result is after a year you will have made 26 half payments or 13 full payments or 1 extra per year. For an example of the savings, a $200,000 30-year loan with one extra payment per year will reduce it to 26 years with a savings of over $32,000 in interest.