Why You Should Be Making One Extra Mortgage Payment Per Year
You’ve worked hard, saved your money and bought your first home. You also learned how to manage a household budget and made all your monthly mortgage payments in full and on time. Now that you have the hang of managing the household finances, why would you want to add an extra mortgage payment every year? Below are a few reasons why we think it may be a good idea.
Save On Interest: By paying more toward your mortgage payments, an increasing amount will end up going toward reducing your principal balance. This lowers the amount of interest added to the loan each month. Although these savings won’t be seen until loan is paid off, the saving potential could be quite significant.
Build Equity Faster: Simply put, having equity built up in your home increases the value of your investment. This could mean substantial profits if you decide to sell before the loan is paid off. Equity also provides an option for future home improvement loans. If you’re paying PMI (link to Lynx PMI post), the faster you reach your equity threshold, the sooner you won’t be making PMI payments.
Pay Your Home Off Earlier: Even if you only make one extra payment per year, this may end up paying off your home up to 3 or 4 years earlier. Imagine, having all that extra money in your pocket three or four years earlier than planned.
Extra Mortgage Payment Tips
There are three great ways to make an extra payment per year. You could opt for the one lump sum payment, making an extra payment all at once. You can also divide your monthly payment by 12 and pay 1/12 extra on each monthly payment. Using the biweekly method, you can divide your monthly payment in half and pay that amount every other week. By the end of the year, you will have paid an extra mortgage payment.
If you have the discipline and financial means necessary to make one extra payment per month, go for it! As you can see, the benefits are enormous.