Should You Make an Extra Mortgage Payment?

Mom laying in hammock with daughter at dusk

Even if you’re excited to get a mortgage, you might also like the idea of owning a home free and clear. Hey, you’re not alone. A 30-year mortgage can feel like forever—but it doesn’t have to.

What if you could pay off your mortgage early and keep your monthly payment roughly the same?

This might seem impossible, but the truth is, paying off your mortgage early is easier than many people think, thanks to the power of making an extra principal payment (at least once a year).

Now, an extra mortgage payment isn’t going to lower your scheduled monthly payment. This will remain the same until you pay off the loan. It does, however, reduce the amount of interest you pay over the life of the loan.

Basically, your remaining loan balance determines the amount of interest owed. Since extra principal payments reduce your principal balance little-by-little, you end up owing less interest on the loan. And when you owe less interest, you’re able to shave years off your mortgage term.

Let’s say you have a $200,000 mortgage with a 30-year fixed rate of 3.9%. In this scenario, an extra principal payment of $100 per month can shorten your mortgage term by nearly 5 years, saving over $25,000 in interest payments.

If you’re able to make $200 in extra principal payments each month, you could shorten your mortgage term by eight years and save over $43,000 in interest.

But even if you like the idea of making an extra mortgage payment and getting rid of your mortgage early, coming up with the extra cash is easier said than done. Here are a few tips to make this approach more affordable:

1. Put Yearly Windfalls Towards Your Mortgage.  
Rather than waste a work bonus, holiday bonus, tax return or other windfalls on things you don’t need, put the cash to good use and make an extra principal payment.

2. Pay a Little More Towards Your Principal Each Month. 
Another trick is to divide your current mortgage payment by 12, and then add this much to each monthly payment. So if your mortgage payment is $1,400 a month, make an extra principal payment of $116 each month. At the end of the year, you would have made the equivalent of one extra mortgage payment. (*see final word)

3. Round Up Your Mortgage Payments.
Keep in mind, though, that “any” extra amount paid to reduce your principal balance can knock years off your mortgage term. So if you can’t afford an extra mortgage payment, round up your scheduled payments to the nearest $100 amount instead. This small move pays off in a big way.

To illustrate, if you have a mortgage payment of $1,140 and make an extra principal payment of $60 each month (for a total payment of $1,200), you’ll shorten your mortgage term by three years. (*see final word)

Final Word
When making an extra mortgage payment, always specify that you want the extra money applied to “principal only.” If you’re paying your mortgage by check, one check should be for the scheduled payment due, and the second check should be for the principal only. Indicate this in the “Memo” section of the check.

Online payment forms will typically give an option for scheduling extra principal payments.

Whether you’re buying or refinancing a home, the loan experts at First Bank Mortgage can guide you through the mortgage experience and find the right loan for you.


We’re here to help. Anytime.

Have questions? Contact us for neighborly advice.

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