11/04/2024
The Benefit of Added Mortgage Payments
Adding just a few extra dollars per month to a mortgage payment can have a significant impact on the debt.
The 30-year fixed-interest rate mortgage hit a high of 7.79% in late October 2023; now, we're seeing this type of mortgage at an average of 6.38% (forecast for the fourth quarter of 2024).
For example: you bought a home last year, it's probably too soon to think about refinancing, but have you considered the benefit of making extra payments to lower your interest amount and shorten the term of your loan?
The good news is that mortgage amortization calculators are available online, so you can test making extra payments to see the benefits that can result.
Thanks to the mathematics of compounding, you don't have to make big sacrifices to make a significant impact on your debt.
Using an online mortgage amortization calculator (try using one at calculator.net).
Say you have a 30-year fixed-interest mortgage at 5.5% with a balance of $250,000. Your regular payments would be $1,419.47. In 30 years (Oct. 1, 2054), you will have made 360 payments of $1,419.47 for a total of $511,010. Of that amount, you would have repaid the $250,000 loan and paid the bank interest of $261,010.
What if you added just $100 extra to that monthly mortgage payment each month, making it $1,519.47? You would pay off your $250,000 debt four years and five months earlier, saving yourself $44,877 in interest payments.
Of course, the more you add as an extra payment, the bigger your savings.
If you were able to make an extra payment of $500 a month ($1,419.47 plus $500), you would save 13 years and five months of payments and $129,580 in interest payments. Your total interest payments would be reduced from $261,010 to $131,430.
Worth considering? Absolutely. Lowering your personal debt is the name of the game in today's financial marketplace. Making small sacrifices today can reap huge savings over the long term.
Who shouldn't make extra payments? Someone with high-interest-bearing consumer debt. If you are carrying credit card debt at high interest rates, pay that off first. Then tackle your mortgage.
