Mortgage Loan - Extra Principal Payments

In many mortgage contracts, making extra principal-only payments is permitted. These extra payments can significantly reduce the time of the loan, and save quite a lot of interest.

Even occasional extra payments will make a difference, but the recommended strategy is to pay the same extra amount each month, so that it "feels" normal. When you need some extra cash, just skip the extra payment, and pick it up the next month.

Suppose you pay off the loan 14 years early using the $500 extra payment strategy. You could deposit $1,248 ($1,748 - $500) each month for the next 14 years (remainder of the 30 year loan) in a savings account - that is, pay yourself. You will re-coup most of the $500 per month extra ($84,000 of $96,000) and have $210,000 plus interest !

In many mortgage contracts, making extra principal-only payments is permitted. These extra payments can significantly reduce the time of the loan, and save quite a lot of interest.

Even occasional extra payments will make a difference, but the recommended strategy is to pay the same extra amount each month, so that it "feels" normal. When you need some extra cash, just skip the extra payment, and pick it up the next month.

30 year fixed, $250,000 mortgage, 7.50% with extra principal-only payments per month |
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Mortgage | Extra Payment | Years | Interest | ||

$1,748 | $0 | 30 | $379,284 | ||

$1,748 | $50 | 27 | $336,569 | ||

$1,748 | $100 | 25 | $303,914 | ||

$1,748 | $250 | 20 | $238,504 | ||

$1,748 | $500 | 16 | $178,491 | ||

$1,748 | $750 | 13 | $143,763 | ||

$1,748 | $1,748 | 08 | $ 82,332 | ||

$500 extra principal-only payment nearly reduces the loan 50% saves over $200,000 of interest |

Suppose you pay off the loan 14 years early using the $500 extra payment strategy. You could deposit $1,248 ($1,748 - $500) each month for the next 14 years (remainder of the 30 year loan) in a savings account - that is, pay yourself. You will re-coup most of the $500 per month extra ($84,000 of $96,000) and have $210,000 plus interest !