Should I pay extra on my mortgage payments?
Throughout the life of your mortgage, there may be times when you’re looking to pay extra on your mortgage. Maybe you received a bonus that month or you finished paying off other debt. Making extra mortgage payments may help reduce the term of your loan, in addition to the amount of interest paid over the term of the loan. However, while making extra mortgage payments typically comes with benefits, there are other things you may want to consider before doing so.
Potential benefits of paying extra on a mortgage
Paying extra on a mortgage may help reduce the amount of interest paid over time, in addition to the total amount of time it takes to pay back your mortgage. You may be able to reduce the amount of interest paid and the time it takes to pay back your mortgage by applying extra payments directly to the principal balance. Making payments directly to the principal normally reduces the amount of interest paid because interest is calculated as a percentage of the principal. Typically, the lower the principal, the less interest owed.
Things to consider before paying extra on a mortgage
Before making extra payments on your mortgage, you may want to consider the impact this might have on other areas of your finances. For example:
- Savings: By making extra mortgage payments, you may not be able to save as much as you normally would.
- Monthly payments: Paying extra on a mortgage doesn’t normally lower your monthly payment, so you’ll still need to keep that regular monthly payment in mind.
- Cash flow: With extra payments going toward your mortgage, you may have less cash to spend on other necessities. If you find yourself able to make extra monthly payments, it may be worth exploring refinancing or shorter-term loan options.
When to make extra mortgage payments
If you feel comfortable about your finances and don’t believe there’s a place where the payments would be better suited, then it may be time to consider making extra mortgage payments. Even a small amount extra each month may help you get ahead.
An extra mortgage payment calculator can help you visualize how making extra payments may reduce the amount of interest paid over the lifetime of the loan. A word of caution, though: You may want to check for any prepayment penalties in your mortgage agreement if you’re looking to pay down a significant portion of your principal ahead of schedule.
In summary
Making extra mortgage payments can help reduce interest as well as the term of your loan. Evaluating what works for your financial health while using a mortgage payment calculator can help you decide if making extra mortgage payments may be worth it in the end.
