The difference between the price of your home and what you pay over the life of your mortgage is substantial. Making additional principal-only payments on your mortgage can reduce your interest and help you pay your loan off sooner.
There are different methods for making additional annual principal payments. For example:
If you borrowed $180,000 on a 30-year fixed-rate loan at 7%, your monthly principal and interest payment would be $1197.54.
- By paying one extra payment of $1,197.54 annually, the loan will be paid off in 24 years, and interest savings would be $59,127.
- By making $598.77 in biweekly payments, the loan will be paid off in 23 years and 11 months, resulting in interest savings of $60,397.
- By paying an extra $99.80 per month, the loan will be paid off in 23 years and 9 months, resulting in an interest savings of $61,457.
- By paying an extra $3,000.00 annually (with proceeds from your tax return or bonus), the loan will be paid off in 18 years and 11 months, resulting in savings of $105,852 in interest.
Always designate your extra payment as being towards the principal. Make sure you ask your lender about any extra fees. Some lenders may charge fees for additional principal payments or early payoff.
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