Adding Money to Pay Off a Mortgage Early

Payoff your mortgage early with small extra principal payments each month.

Adding money to your mortgage payment can significantly reduce both the time it takes to pay off your mortgage and the total amount of interest you will pay. For example, adding $100 per month to a $100,000 mortgage with seven percent interest will reduce the time to payoff the loan by more than nine years. If you can start adding money to pay off your mortgage early, your future savings could be significant.

Things You'll Need

• Mortgage payment statement

Instructions

1. Determine how much money you want to add to your mortgage payment. An online mortgage calculator with amortization will show you the effects of additional monthly, annual or one-time payments. Mortgage calculators at websites such as from Bankrate.com are usually free to use.

2. Find the box on your mortgage payment statement for additional principal payments. Your mortgage statement should have places to enter in additional payments for principal or escrow. Extra principal payments will pay down your mortgage faster.

3. Write the amount of the extra principal payment in the box and add that amount to your regular mortgage payment. Put the total amount in the box for total amount paid.

4. Write a check for the calculated amount and send it to your mortgage company with your mortgage payment coupon.

5. Verify the additional payment actually went to reduce your mortgage principal. If you receive monthly mortgage statements, check the next statement for the last payment disbursement. If you have a coupon book, call your mortgage company or check your mortgage balance using the mortgage company's online system.

Tips & Warnings

• Additional principal payments made early in a mortgage have the most effect on reducing the time to payoff the mortgage.

• Pick an additional payment amount that fits your budget and how you are paid. If you receive an annual bonus, use part of the bonus to make additional principal payments.

• It is OK to vary the amount of extra principal payments to fit your monthly budget. You are not obligated to make additional payments once you have started.

• Additional principal payments do not reduce your future mortgage payments.

• Paying off a mortgage early is a long term program and you may not see savings for many years.

References

• Get Rich Slowly: Mortgage Prepayment Made Easy

Resources

• Bankrate.com: Mortgage Calculator