Let's examine how much more money you can save by making a slightly larger extra principal payment and how it much it helps you pay down your mortgage faster. The mortgages and payment schedules are indentical in this example. The only difference is that in one case we pay $100 more principal per month than we are required to and in the other case we pay $125. After reviewing this example, use the extra payment calculator to find out how much you can save on your mortgage.
In this scenario, simply increasing your monthly extra principal payment by $25 from $100 you will pay down your mortgage 12 months faster and you will increase your interest savings by $10,493! The total savings of the slightly larger extra payment would be $70,047 interest savings and 80 months saved compared with simply making the minimum payments required by the loan terms. In summary, a small increase in the amount of additional principal you pay each month allows you to pay down your mortgage faster and significantly increase your interest savings.
- Extra Payment
- The amount of additional principal that you plan to add to your mortgage payment. To get the financial benefit of paying down your principal balance early, direct your mortgage servicer to use the extra payment to pay down the mortgage balance immediately rather than giving you a credit towards your next scheduled payment. Some loans restrict how fast you can pay off your loan and may even have prepayment penalties. Refer to your mortgage documents, including the prepayment penalty rider, if any, to determine if this applies to you. You should also check with your mortgage servicer to make sure that extra payments you make do not trigger a prepayment penalty.
- Extra Payment End
- The number of months from now that you plan to make your last extra payment of principal.
- Extra Payment Frequency
- The frequency is how often you plan on making extra payments of principal. Some homeowners add an extra payment of principal to their mortgage payment every month. Others may choose to pay extra principal on a quarterly, semi-annual, annual or one-time basis to better match the times when they have more cash available. For example, borrowers who receive a regular bonus or tax refund may wish to use them to pay down the principal balance of their mortgage.
- Extra Payment Start
- The number of months from now that you plan to make your first extra payment of principal.
- The portion of your mortgage payment that is due to the interest rate being applied to the principal balance. The Total Interest for a mortgage is the sum of all interest paid over the life of a loan.
- Interest Rate
- The percentage of the principal balance of your mortgage that determines how much interest you must pay. The interest rate on your mortgage may change or remain the same depending on the type of loan you have.
- Loan Amount
- The initial principal balance or your mortgage at closing.
- The portion of your mortgage payment that is used to pay down the current balance of your mortgage. The principal balance represents how much you owe on the mortgage.
- The amortization term is one of the key factors that determine your required mortgage payment. Your required mortgage payment for fully amortizing mortgages is the amount that would result in the mortgage being closest to being paid off by the end of the amortization term. Longer amortization terms result in lower required mortgage payments for fully amortizating mortgages, all other things being equal.