There are a few easy ways to make extra principle payments that can save a significant amount of interest and help you become mortgage-free sooner. Here are a few simple strategies:
1. Round your monthly payment up
The results of this simple strategy can save you a fair amount of money and drastically reduce the length of your mortgage.
Example: On an interest rate of 5.5% on a 25-year mortgage, rounding up monthly payments from $734 to $800 would save over $48,000 in interest and reduce the mortgage term by 7.5 years!
2. Make One Time Pre-Payments Using Your Income Tax Refund
This is an easy way to save money and shorten your mortgage. For example, with a 5.5% interest rate on a $500K mortgage over a 25-year term, if you applied a $1000 of a tax refund each year, you would save approximately $20,500 in interest over the life of the loan and your mortgage would be paid off approximately 11 months earlier.
3. Choose a 15 Year Mortgage
If you can afford it, you are far better off getting a 15 year mortgage instead of 30. It won't cost you much more, and the interest savings are truly incredible.
If you have a mortgage of $100,000 at 8% interest over 15 years, your monthly payment would be about $200 more, but you'd end up saving $92,083 in interest over the life of your mortgage!