January 2nd, 2014 4:06 PM by Frank Ferrell
You've probably heard that making an extra mortgage payment per year is a good thing. But how good? Will it really make a big difference in your financial future?In most cases, YES! Any extra payments made to your loan will 1) cut the length of the mortgage and 2) cut the amount of interest you pay over the life of the loan. You will build equity faster, which will also make you more appealing to future lenders.Consider this: for a 30-year loan of $200,000 at 5%, your monthly payment may be approximately $1,074. Making an extra payment per year, you typically could pay off your mortgage 4 years and 9 months ahead of schedule, while saving about $35,000.To calculate your actual payment information, use our Mortgage Extra Payment Calculators on our website here: Mortgage Payoff Calculator and Bi-weekly Payment CalculatorBefore you decide to make an extra payment, though, consider how else you might use this money. For example, if you have unsecured debt in high-interest credit cards, you may choose to attack that debt first. Also, it may be wise to make sure you are taking advantage of any "matching" benefits that you have with your 401k before you consider extra mortgage payments.If you have decided that making an extra payment is the way to go, but can't afford to plop down one whole payment, consider breaking your extra payment into 12 monthly chunks. You are still getting the benefits of making an extra payment, just in smaller, more manageable bites.Paying off your mortgage early through one extra payment per year is a smart financial move, but be sure that you've paid off your highest interest loans first and fully funded any matching retirement accounts.If you decide to pay monthly, or make one extra large payment per year, be sure to ask your lender how to make extra payments so they will reduce the principal amount on your loan. This extra payment can dramatically reduce your repayment period and save you a lot of money over the life of your loan.