How to Make an Extra Mortgage Payment

Resolving to make extra mortgage payments on your home is a fool-proof way to pay off your home faster and save you hundreds if not thousands of dollars in interest. If you are able to spare the extra cash, making just one extra mortgage payment per year can pay off big in the form of savings on interest. It's possible to make that extra payment or two even if your budget is tight. But before you start, it is important to determine how advantageous making extra mortgage payments can be for your individual situation.

Things You'll Need

• Calculator
• Copy of household budget
• Access to the bank account used to pay the mortgage, either in person at the bank or online

Instructions

Weigh the Options

1. Evaluate high-interest credit card debt before evaluating your ability to make an extra mortgage payment. If you carry any high-interest debt at all, your extra money should go toward paying this debt off first, primarily because the interest rate or rates on this debt is likely much higher than your mortgage's interest rate. Additionally, high-interest credit card debt is much more damaging to your overall credit score and therefore should be eliminated to help you save more money over time.

2. Determine the status of your emergency savings fund. Ideally, your emergency savings account should contain enough money to cover all household expenses for 3 months. Saving enough money for even 1 month's worth of expenses is a good start, as emergency funds help keep you from incurring debt due to unplanned expenses. If your emergency fund doesn't meet these guidelines or is nonexistent, consider using your extra funds to build up that fund before paying more on your mortgage.

3. Determine your mortage's interest rate and how it relates to current market rates for mortgages. The higher your interest rate, the more advantageous it is to make extra mortgage payments if you can afford them. However, if your interest rate is relatively low, perhaps your extra cash is better suited to the causes listed in the previous 2 steps.

Setting Up an Extra Mortgage Payment

1. Divide your monthly mortgage payment by 12 and then round it to the nearest dollar. For example, dividing a mortgage payment of $2,000 by 12 will give you a quotient of $166.66, which rounds up to $167. Feel free to round up to the nearest 10 or 100, which for example would yield $170 or $200, respectively.

2. Add the amount to your current mortgage payment to determine your new monthly payment. For example, a usual mortgage payment of $2,000 would be $2,167. Paying this new amount each month will equal 1 less mortgage payment per year. If you've just begun paying on a 30-year mortgage, paying the extra amount can equate to thousands of dollars less in interest paid, depending on the interest rate and total amount borrowed.

3. Access the account used to make your mortgage payments. Typically, mortgage holders elect a convenient automatic payment feature that is standard at banks nationwide and can also come with incentives such as paying one-quarter percent less in interest if the account is set on an automatic payment schedule.

4. Alter the automatic payment amount within your account to reflect the new monthly payment you have calculated. Now, watch as your interest payments shrink from year to year and eventually disappear sooner than you originally expected!

Tips & Warnings

• Gauge the feasibility of paying an extra mortgage payment by doing a thorough evaluation of your monthly expenses. Take a good look at how much you spend on extra splurges such as eating out. If eating out just once per month--or even once per week--translates into more money you could apply to your mortgage, this slight sacrifice will be worth it over time.

• Times are tough, so it is important to plan for unexpected emergencies. Applying extra money to your mortgage is truly a waste if you do not have a sufficient emergency fund to ward off incurring high-interest debt.