Increasingly popular programs, such as the FIRE Movement, encourage both young adults and older people to pay off their debts, seek financial independence, and achieve early retirement. However, no matter what your motivation is, there are some crucial details to consider before making the decision to pay off your mortgage months or years in advance. With our mortgage payment calculator, you can calculate the numbers and discover how much you could save in interest or how much you would have to pay each month to pay off your loan sooner. If you had to follow a biweekly payment schedule, you could add an additional full monthly payment to your mortgage every year.
A biweekly payment makes a lot of sense, especially for those who receive their biweekly or semi-annual paychecks. By making 26 half-paid payments during the year and paying one more month, you're putting more money into your principal balance, which ends up shortening your mortgage. Be sure to contact your bank and make sure they don't charge you fees for switching to a biweekly payment schedule. On the other hand, let's say you want to pay off your loan sooner, but you don't want to have to pay more every month in case you need those extra funds for other things.
By paying more than the required amount each month, you can pay off your loan sooner while remaining free to pay any additional amount that best fits your budget. What happens if you receive a windfall and get additional funds? If your goal is to pay off your mortgage loan sooner, a lump sum payment may be the right option. You can do this by making a one-time payment to cover the principal balance. This will not change the amount of your monthly payment. Instead, it will go to capital and will go a long way in helping you pay less interest over the term of the loan.
So, by making a one-time payment, that amount won't reduce your monthly payments, but it will help shorten the term of the loan. Remember that having some debts is considered good debt. A mortgage is one of them. Lenders like to make it more attractive for the borrower to make monthly payments on the entire loan. Making additional principal payments will shorten the term of your mortgage and allow you to accumulate capital more quickly.
Because your balance pays off faster, you'll have to make fewer total payments, which in turn will result in more savings. When you make your normal monthly payments, you will either amortize or amortize your loan. However, if it fits your budget, paying more to cover principal can be a great way to reduce the time it takes to repay your loans and the amount of interest you'll pay. Even making small additional payments over time can reduce years of your loan and save you thousands of dollars in interest, depending on the terms of the loan.
Review your mortgage documents or check with your lender to see if you'll be charged fees for making additional mortgage payments. If you've already paid a significant amount of your principal, refinancing could lower your monthly mortgage payments. Without those financial reserves, you could jeopardize your mortgage, including the extra money you worked so hard to get if you make additional mortgage payments. One of the most common ways people pay more to cover their mortgages is to make biweekly mortgage payments.
However, while the idea of paying off your mortgage faster and living in your home without a mortgage sounds great, there may be reasons why making additional payments to cover the principal might not make sense. Use the mortgage overpayment calculator above to determine your potential savings by making additional payments for your mortgage. This could be one additional mortgage payment a year, two additional mortgage payments a year, or an additional payment every few months.