There’s a simple trick to reduce the repayment period of your mortgage and save you thousands over the course of your loan: Make additional payments which apply toward your loan principal. You can do this in several ways. For many people,Perhaps the easiest way to keep track is by making one additional payment per year. But some people won’t be able to pull off such a large extra expense, so splitting one extra payment into twelve additional monthly payments works as well. Another option is to pay a half payment every two weeks. The effect here is that you will make one extra monthly payment in a year. These options differ slightly in lowering the total interest paid and shortening payback length, but each will significantly shorten the length of your mortgage and lower the total interest paid over the duration of the loan.
Lump Sum Extra Payment
Some borrowers just can’t make any extra payments. But it’s important to note that most mortgage contracts allow additional payments at any time. Any time you get some unexpected cash, consider using this provision to make a one-time additional payment toward your principal.
Here’s an example: five years after moving into your home, you receive a very large tax refund,a very large legacy, or a non-taxable cash gift; , you could pay this money toward your loan principal, resulting in huge savings and a shorter payback period. For most loans, even a modest amount, paid early in the loan period, could offer huge savings in interest and in the duration of the loan.