Making regular extra payments toward your principal balance yields singificant returns. You can do this in various ways. Paying 1 additional full payment one time per year is probably the simplest to track. Of course, many people will not be able to pull off such a large additional expense, so dividing one extra payment into 12 additional monthly payments is a great option too. Finally, you can commit to paying half of your mortgage payment every other week. These options differ a little in lowering the total interest paid and shortening payback length, but they will all significantly reduce the duration of your mortgage and lower the total interest you will pay over the life of the loan.
It may not be possible for you to pay extra every month or even every year. Remember that most mortgage contracts will permit you to make additional payments to your principal at any time. Any time you come into extra money, you can use this provision to pay an additional one-time payment toward principal.
If, for example, you receive a very large gift or tax refund five years into your mortgage, paying a few thousand dollars into your mortgage principal will significantly shorten the repayment duration of your loan and save a huge amount on mortgage interest paid over the duration of the mortgage loan. For most loans, even this modest amount, paid early in the loan period, could offer big savings in interest and in the length of the loan.
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