Jun 19 2008
Mortgage Tip - Paying extra toward principal saves money
Homeowners are getting pretty savvy these days. But just in case you haven’t thought about this, here’s a tip to save money on your mortgage payments.
Owners tend to pay the minimum payment on their mortgage each month. However, if you can afford to pay just a little extra toward the principal amount (amount due on the loan itself, and not the interest, property taxes or insurance), it will make a big difference.
For example, you borrowed $100,000 at 6% interest over 30 years and your monthly payment on that is $599.55. Over the term of the loan your total interest payments will be approximately $115,838.
If you add just $50 per month to pay off the principal, you’ll save almost $32,500 in interest payments. That’s a pretty hefty chunk of change.
In addition, you’ll have your loan paid off about 3-1/2 years early.
Of course, the more you can pay each month, the more you’ll save. But even if you can’t pay an extra $50 every month, any extra amount paid at any time will lower your interest costs in the long run.
Make sure that when you pay something extra that you specify that the amount is applied to the principal only. Most lenders will allow you to do this but you you should check with the lender if your mortgage statement does not specify that you can.
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