mortgage

[lggilmore8747]

Pay more toward the principal on your mortgage to pay it off faster. This will save on the interest paid over the life of the loan.

[MuktaS390247]

Making additional payments to the principal balance is one of the easiest ways to save thousands in interest. Even if you can round up your payment a little bit, you will be amazed at how much it will all add up over time. What helps the most is consistency. Doing it each month adds up without you noticing it. Some lenders will even let you set it up so that it will come out automatically so you do not have to think about it. Make sure that any additional payments go toward the principal, not to next month's payment. Also, there is a good explanation of how mortgage interest works in easy-to-understand terms at consumerfinance.gov/ask-cfpb/what-is-mortgage-forbearance-en-289/. You can find a good example at reverse.mortgage/interest-repayment. You can do small things like that to really speed up the mortgage-free point!

[JohniesJ420422]

Making extra payments on the principal of your mortgage can help you pay it off more quickly and save thousands of dollars in interest over the life of the loan. The faster you can pay down the principal balance, the less interest will have accrued over time and therefore, the total cost of your mortgage decreases.

You’ll also need to think about how this could affect your tax deductions. Mortgage interest is often tax-deductible, and if they’re able to make extra principal payments it could reduce the amount of interest they wind up paying down the road, potentially changing their combined deduction status in relation to other deductions.

If you want to learn a little more about how your mortgage payments and interest deduction might go hand-in-hand, take a look at some of the specifics right here: Interest & Tax Deduction – Reverse Mortgage. This page explains how mortgage interest deductions can affect you, and how making extra payments toward your mortgage might change some of those outcomes. 

[ChaloeJ164933]

I've heard that increasing my principal payment on my mortgage will speed up its payoff and reduce my interest costs. Is that accurate? What are some ways to accomplish this without breaking the bank, and how does it operate exactly?

[GailL1]

You bet it does BIG TIME.  This is how I did it years ago.  Haven’t had a mortgage in 20 years.  And as a bonus, as you pay down the principal faster, you build your equity faster.  This way, you also keep up with your mortgage balance sheet and your escrow account.  

To do it properly, you need an amortization schedule so that you and the mortgage holder end up with the same figures monthly.  You will make your mortgage payments on time, every month, just like usual.  You will allocate your mortgage payment as to how much goes where every month just like now - 

Columns will be:  

Month Year

Principal

Interest

Escrow -Insurance

Escrow - Taxes

EXTRA PRINCIPAL PAID

Ending Principal

Every month you will do the same and this should equal exactly what your mortgage holder is showing. 

• Interest on mortgages is assessed monthly on what you have outstanding in your principal - and any other charges that you haven’t paid off as they occur like any late charges or other assessed fees
• any escrow payments remain the same if you have them - like insurance and taxes - they have been figured on the amount of those items in the previous year + any shortages as well as a reserve that is outlined in your mortgage documents.  So these amounts do change from year to year, if you have them * , but not based on paying down your principal.
• Make sure that your mortgage does NOT have a prepayment clause - this is one problem that could stifle your efforts to pay your mortgage off faster - most don”t have such a clause
• You must be consistent in the added extra principal payments to your mortgage payments every month.  The more extra, the better, cause the faster the principal decreases, the less interest is calculated on the outstanding amount. You can do more or less because you are going to have a schedule that will keep up with this.
• Go to a mortgage calculator that also has an amortization schedule that you can print out.  I used BankRate.com - Mortgage calculator and amortization schedule   

You can actually make this in the current time without having to go back all the way to the beginning.  But you can, if you can and it is easier.  

To get it to the current day balance, principal and escrow, this may take a bit of back and forth in numbers to come up with your current principal and interest but once you get it done and print out the amortization schedule then it should all fall in line and your figures should match that of your mortgage holder going forward and your can also log in any extra principal payment that you make on a monthly basis - the same or different amounts.

What you will come up with is an amortization schedule by month - look at the amortization schedule on the Bankrate mortgage calculator site - they show it by year - you will be doing one by month and also showing how your regular mortgage payment is allocated with escrow, accounting for it.  You will also have an addition column showing any extra principal that you have made the month before. 

Don’t let the math upset you - like I said once you get the right figures and keep up with it monthly - it is easy and you will be so proud of yourself when you see that principal dropping.

If you need help developing it - you will have to supply some number info on your mortgage to develop it - like the amount of the mortgage when it began, term of mortgage, interest rate and when it started (1st payment due date), the amount of your mortgage payment and how much of it is for escrow if you have an escrow account.

*   a lot of people don’t know that if you pay down 20% or you pay down your mortgage to have less than 80% in principal to equity that you do not have to have an escrow account but that is only if you are disciplined enough to handle these payments on your own - taxes / insurance / whatever else.

Good Luck

[LisaS961881]

    I agree with everything that Gail wrote, and I appreciate the thoroughness of her reply.

    I just wanted to share that I highly recommend doing this too!

    Back in ‘86 for my condo and ‘99 for my current home, when I asked my lender for a copy of my amortization schedule, they provided me with one - a paper copy.  Maybe they don’t do that anymore, or maybe they automatically give you one now - I simply don’t know.  As silly as it sounds, it was thrilling to document that “extra principal paid” each and every month on the pages of those schedules, and see how much money I was saving!  It was so motivating!  

    Sometimes it was just a tiny prepayment, and sometimes it was quite a lot, but, from the onset, with both my condo and then my house, I made a vow to always make a prepayment because I was worried that if I had a “just this once I won’t “ mentality, I’d fall off the wagon. With both my 30 year and my 15 year mortgages, I saved years doing this!  Gail is so right!  It truly is like “free money” - sort of like that cashback you get with your credit cards! 🌈😊

Please consider doing this and good luck!

  ~Lisa 🏡 

[GailL1]

I tried to make my EXTRA principal at least $ 300 a month but if we had a really good month (self-employed) then I did more -  yes, I enjoyed seeing that amount go down and since my husband died at the age of 58 (i was 59) it sure made life easier and  better for me after I was widowed (we were self employed together - he was the artist, I sold his work - all originals.)