Here's
a simple trick to reduce the repayment period of your mortgage and save you
thousands over the course of your loan: Make additional payments that go toward
your loan principal. Borrowers can pay extra on principal by employing various
techniques. Paying a single extra full payment one time every year is perhaps
the easiest to track. If you can't pay an extra whole payment all at once, you
can divide that payment by 12 and write a check for that additional amount
monthly. Finally, you can pay half of your mortgage payment every two weeks.
Each option yields slightly different results, but they will all significantly
shorten the length of your mortgage and lower the total interest paid over the
duration of the loan.
Some people just
can't make extra payments. Keep in mind that almost all mortgage contracts will
allow you to make additional payments to your principal at any point during
repayment. Whenever you get some extra money, consider using this rule to pay
an additional one-time payment toward your principal. If, for example, you
receive a large gift or tax refund three years into your mortgage, you could
pay a portion of this money toward your mortgage loan principal, which would
result in significant savings and a shorter payback period. Unless the mortgage
loan is quite large, even a few thousand dollars applied early can yield huge
benefits over the duration of the loan.