Shave Years Off Your Mortgage with This Simple Trick

Amanda Peterson

May 29, 2024  •  2 Minute Read

Banking & Investing, Money Saving Tips

It's Wise Spend Wednesday and it's time to focus on your home – specifically, how to save a BIG chunk of money on your mortgage over time. The trick is to make one extra mortgage payment every year.

It might seem like a baby step, but consistently applying one additional payment towards your principal can dramatically reduce the total interest you pay and shorten the length of your loan. According to a mortgage calculator from Ramsey Solutions, just one extra annual payment on a 30-year mortgage could save you tens of thousands of dollars.

Let's do the math: Your monthly mortgage payment is $1,000. By making one additional $1,000 payment annually, you're essentially paying an extra month's worth of principal each year. This reduces your loan balance faster, meaning you pay less interest over the life of the loan.

If an extra lump sum of a mortgage payment seems like a lot to handle, try paying a few bucks over the monthly payment, and apply that to the principle. Take your monthly payment, and divide that by 12, add that much more to your principle when you pay the bill. At the end of the year, you will have succeeded at making that extra payment. This will help you to pay your mortgage off 4-5 years sooner.

Years Shaved and Thousands Saved

Movement Mortgage reports that a single extra payment a year on a 30-year mortgage can shave off four to five years from the loan term. That's huge! Can you imagine owning your home outright five years sooner — and freeing up hundreds of dollars each month that was previously going towards your mortgage payment?

The exact amount you'll save depends on your specific loan amount, interest rate, and the remaining term. However, the potential for cost savings is undeniable.

Making it Work for You

There are a few ways to implement this strategy:

• 1. Yearly Bonus: If you receive a yearly bonus, allocate it directly towards your extra mortgage payment.
• 2. Tax Refund Boost: Think of your tax refund as a windfall and put it towards your mortgage principal.
• 3. Budget Tweaks: Find small areas in your budget to trim and dedicate those savings to your extra payment.

Consistency Is Key

A single extra payment each year, or a few extra bucks applied to your principal each month, can make a big difference. Wise Spend Wednesday urges you to put this strategy into action. Your future self, with a paid-off mortgage and significant savings, will thank you! Keep following us here at creditsoup.com for more weekly tips on saving money!