How to Make Mortgage Overpayments

Make over-payments on your mortgage to pay the loan off early.

The typical use of a mortgage overpayment is to make extra principal payments to pay a mortgage off early. Paying extra toward the loan principal can have a powerful effect on reducing the total interest paid and reducing the time to pay off the home. A plan of regular extra payments on a mortgage loan can have the home paid off years early. For example, adding $100 per month to the payment on a $100,000 mortgage can reduce the time to pay off a 30-year loan by up to nine years.

Instructions

1. Locate the "Extra principal paid" box on your mortgage statement, payment slip or coupon. Under the amount of your regular payment on the payment slip will be places to enter extra payments for principal and escrow.

2. Write the amount of your overpayment in the box for extra principal.

3. Total the extra payment plus your regular mortgage payment and enter that amount in the total paid box on the payment slip.

4. Write a check for the total payment amount and send it in as your next mortgage payments.

Tips & Warnings

• Use a mortgage calculator with amortization (see Resources) to determine the amount of interest saved by sending in mortgage over-payments.

• Check on your next mortgage statement to ensure the extra payment was properly applied by the mortgage company. As an alternative, check on your mortgage company's website if they offer online access to your loan information.

• Mortgage over-payments cannot be recovered until the loan is paid off or the home sold. A mortgage pay-down plan is a long-term plan and the results will not be realized for many years.

• Some mortgage types have pre-payment penalties. Check your mortgage contract before sending in any additional principal payments.

References

• Get Rich Slowly: Mortgage Prepayment Made Easy

Resources

• Bankrate.com: Mortgage Calculator