What Are the Benefits of an Extra Mortgage Payment per Year on a 30-Year Mortgage?
It's no secret that paying a little extra on your home mortgage helps you pay off your home faster, but how much faster? Just one extra payment a year can cut as much as four years off your mortgage.
Other People Are Reading
-
Overall Picture
-
This process involves paying down your principal faster, reducing the amount of interest you are responsible for. For example, let's say you have a $100,000 mortgage with a 30-year fixed rate mortgage at 7 percent. By adding $56 a month to your payment--the equivalent of one extra payment a year--you reduce your interest by $34,000 over the life of the loan.
How It Works
-
The $34,000 in interest savings is money that you will never pay. Your mortgage will be reduced by that amount overall. It is important to note, however, that making extra mortgage payments will not reduce the amount of your payment in the future, nor will they allow you to skip a payment.
-
Why You Should Do It
-
Paying extra will allow you to get out from under your mortgage faster, especially in an economy in which housing prices are falling and interest rates are increasing.
Economic Shift
-
Previously, it made more sense to leave your money in investments that earned more in returns than your mortgage was costing you, but the economic climate has changed, and saving money both long- and short-term is paramount.
Future Credit Rating
-
Also, the more equity you have in your home, the less of a credit risk you will represent to a potential lender if you find yourself in need of a new loan. Credit ratings are going to be the deciding factor when determining who is qualified to obtain new credit. There will no longer be a subprime lending community. Paying down your home quickly will improve your credit rating.
-
