The Mortgage Corner with GreenState Credit Union: How an Extra Payment Will Impact Your Mortgage Balance
Curious how making an extra mortgage payment will impact your mortgage balance?
For many, the thought of paying off a mortgage can be daunting, especially when looking at a 30-year term. However, making extra payments can help you save thousands of dollars in interest and payoff your loan quicker.
Understanding Your Mortgage
When you first start paying your mortgage, the majority of your payment goes towards interest. As time goes on, more of your payment goes towards paying off the principal. This is known as amortization. Making extra payments to your mortgage can significantly speed up this process.
Benefits of Extra Payments
Making extra payments to your mortgage offers numerous benefits. The most significant benefit is that it will save you money on interest. Since interest is calculated based on the outstanding balance of your loan, reducing that balance with extra payments will result in less interest charged.
Another benefit is that it will shorten the life of your loan. By making extra payments, you will pay off your loan ahead of schedule. This can provide peace of mind and financial freedom sooner than expected. Typically, on a 30 year loan, if you make the equivalent of 1 extra payment per year to principal you will pay the loan off 7-8 years quicker.
Lastly, making extra payments can increase your home equity faster. Home equity is the difference between your home’s market value and the outstanding balance of all liens on your property. As you make extra payments, you increase this equity.
How to Make Extra Payments
There are several ways to make extra payments on your mortgage. One of the simplest methods is to add an extra amount to your regular monthly payment. Even a small amount can make a big difference over time.
You can also make one extra payment per year. This can be done all at once or divided into 12 smaller payments. Another method is to make bi-weekly payments. This results in 26 half-payments per year, which equals 13 full payments.
Making extra payments on your mortgage can be a powerful tool for saving money and gaining financial freedom.
For additional information please contact one of our lending partners at GreenState Credit Union at www.greenstate.org/mortgage NMLS #401238