The Benefits of Making Extra Mortgage Payments

Extrapower in mortgage payment trims the cost of your home loan. With this comes an avalanche of financial benefits, which most house owners are blind to. If one can afford to pay more than scheduled for the mortgage, he will reduce the principal amount and the amount of interest that shall be paid within the life of the mortgage. This ultra-simple extra strategy is going to help you save thousands of dollars, including the interest costs, and may also help you be free of debt years in advance.

Probably the most compelling reason to pay extra on your mortgage is that it's going to cut, substantially, the interest you are paying. Most mortgages are set up so that about half of your monthly payment goes toward interest in the first several years of your loan. The more extra payments you can make, the less interest you will pay. Even small extra payments can make a big difference, especially if you are early in the life of the loan. The interest savings can really add up over time, allowing you to divert those funds to other financial goals.

The extra payments also can be used to shorten the term of the loan. Paying more than the minimum each month, you'll dramatically shorten your mortgage, sometimes taking years off your payback time. Making one additional payment per year of one month's mortgage will cut a 30-year mortgage to about 25 years. It doesn't just bring you more robust equity; it does so faster to debt-free homeowner status.

One of the biggest benefits of being a homeowner is building equity in your home, and making additional payments on your mortgage can do it just a little bit faster. Equity means the share in your home that you rightfully own—a share of a house that turns yours as you pay up your mortgage. So, for every payment that you pay down on your mortgage, that would mean your equity is picking up at an accelerated rate, leaving you above all financially flexible. More equity can give you more choices for refinancing, taking a home equity loan, or giving you a more significant profit in case you sell your home someday.

These excess payments made to your mortgage can also benefit your financial security by cutting down what you owe. The lower your balance, the lower your financial duties, which may feel very liberating and take some pressure off your finances. You will also be able to get an additional layer of protection from the shock of financial stress by paying down the mortgage faster. Having a smaller loan balance will give you the potential for lower monthly payments should you need to refinance during financial stress. That added security feels especially good during uncertain economic times.

By reducing the mortgage balance more quickly, you open up more options with your future decisions. Through this, you will have fewer amounts tied up to the mortgage debt and you can make special investments towards retirement, education, or the purchase of other real estate. A great many times, mortgage brokers will engage in a conversation with their clients to help throw light upon the holistic picture created by making extra payments to their mortgage. It will position you to have a more balanced and diversified financial portfolio.

For instance, if you bought your home with a down payment of less than 20%, this usually will cause you to be obligated to pay PMI, or private mortgage insurance. Making extra mortgage payments to get you to that 20% equity amount, at which you may now forgo PMI payment well into the forward curve, will allow you to get that regular monthly payment down. The more promptly you can cancel PMI, the more money you keep in your pocket every month, which then you are able to put back against the mortgage in extra payments and thus more quickly repay it.

The concept of increasing mortgage payments can be such a great plan to save on the final amount paid, hack on the term of the loan, and gain more equity. In addition, it gives more financial security and flexibility with future financial decisions and might even save one some private mortgage insurance payments. Whether you make small extra payments or large lump sums, the benefits can be quite substantial. By following the advice of mortgage brokers and aligning extra payments with your financial goals, you get the most benefits and attain homeownership with the least stress and greater savings.