Could you adjust your budget and pay a little bit more toward your mortgage every month? Perhaps you can save a small amount and make a lump sum payment once per year?
It might not seem like it, but paying a little bit extra can actually make quite a big difference over the length of your mortgage. It is possible to take years off the loan by simply paying a small amount more per month or making one extra payment per year. When you shorten your mortgage loan, you also end up saving thousands in interest rates over the years.
You might not feel like you can afford to pay extra money on your mortgage, but there are likely a few adjustments that you can make to your budget so that you can squeeze in more payments.
Paying Biweekly Rather Than Monthly
One strategy for paying more on your mortgage is to change your payments to biweekly rather than monthly. Instead of paying a monthly amount, you will pay half the monthly payment every two weeks. As there are 52 weeks per year, you will end up making 26 payments rather than 24 if you made two payments per month. However, you will not notice the difference to your monthly budget.
Make a Big Lump Sum Payment Every Year
Another way to reduce your mortgage is to make a single large payment from the amount that you owe. When you do this, it will be taken directly off the capital, which will mean that your mortgage term becomes shorter. For example, if you get a Christmas bonus at work you could use the amount to pay off some of your mortgage. By doing this, you can reduce your mortgage loan length by several years.
Round Up Your Payments
Why not round your mortgage payment to the nearest hundred? For example, if your monthly payment is £573.45, you could pay £600 instead. This will not affect your budget too much, but it will mean that you end up paying an extra £26.55 per month, which adds up to an extra £318.60 per year.
To find out more about how you can pay more on your mortgage, talk to a UK mortgage broker such as First Mortgage.
Photo: 401(k) 2013
Pretty good post! I just stumbled upon your blog and wanted to say that I have really enjoyed reading your blog posts. Any way I’ll be subscribing to your feed and I hope you post again soon.
Bi-weekly payments can really make a big difference. Rather than saving a big sum that doesn’t earn interest to drop it once a year, I’d rather go with small extra payments as often as possible.
That’s one of the reasons that I decided to go with a 30 year fixed mortgage versus a 15 year mortgage at a lower rate. I could have afforded the 15 year, but decided to go with the 30 year because of the extra flexibility that it afforded. I make extra payments each month towards principle, but I don’t have to. If there are better returns available elsewhere or inflation picks up, I’m not locked into a 15 year.
This is exactly what I like to advise my clients. When buying a house, consider opting for a 30 year mortgage but making the payments as if it was a 15 year. The savings on the interest is astounding. Plus, if an unforeseen financial crisis occurs, you can always drop down to the 30 year payment amount. Just remember though that the additional payments do not allow you to miss a payment or make less than the 30 year amount.
I started by making an additional payment per year. I have accelerated my payments so my mortgage will be paid off by the time I retire (6/21017).
When I look at the interest we pay on our mortgage, it makes me sick! We are only rounding up to the nearest dollar now, but after the consumer debt is gone, we’ll be kicking tail on that puppy!
It’s absolutely shocking how a little money extra here and there can make such a huge difference. I couldn’t imagine not paying extra!
Really interesting article, thanks. I always try to pay extra on my mortgage
I was just going over our mortgage payment the other day. My wife and I are first time homeowners and I was going over the numbers of our payments we would have to make. If we only paid the minimum payment on our mortgage at 4.125% our loan would be completed in 2043. However if we upped our payment by roughly 40 dollars extra I believe it equaled out to shaving off 10 years and $14,000 in savings on interest. Once our consumer debt is taken care of our mortgage will be our next target.
It pays to pay in advance. It is easier to manage future finances that way.