What happens if i pay an extra $100 a month on my mortgage

Paying off your mortgage early can help provide you with financial stability, and you may save money in the long term by accruing less interest. Here are some ways you can pay off your mortgage faster:

1. Refinance your mortgage

If interest rates decline, you may be able to reduce the amount you pay toward interest by refinancing your mortgage. Additionally, you may also elect to reduce your loan term significantly.

2. Make extra mortgage payments

Another way you may be able to save money on interest, while reducing the term of your loan is to make extra mortgage payments. If your lender doesn’t charge a penalty for paying off your mortgage early, consider the following early mortgage payoff strategies.

Just remember to inform your lender that your extra payments should be applied to principal, not interest. Otherwise, your lender might apply the payments toward future scheduled monthly payments, which won’t save you any money.

Also, try to prepay in the beginning of the loan when interest is the highest. You may not realize it, but the majority of your monthly payment for the first few years goes toward interest, not principal. And interest is compounded, which means that each month’s interest is determined by the total amount owed (principal plus interest).

3. Make one extra mortgage payment each year

Making an extra mortgage payment each year could reduce the term of your loan significantly.

The most budget-friendly way to do this is to pay 1/12 extra each month. For example, by paying $975 each month on a $900 mortgage payment, you’ll have paid the equivalent of an extra payment by the end of the year.

4. Round up your mortgage payments

Another way you can help reduce the term of your mortgage significantly is to round up. When budgeting for your mortgage payment, round up to the next highest $100 amount. Pay $800 instead of $743. Or $900 instead of $860.

5. Try the dollar-a-month plan

The dollar-a-month strategy should be financially feasible if your income increases slightly but consistently over time.

Each month, increase your payment by $1. Simply pay $900 the first month, $901 the second month, and so on. For a 30-year, $900-per-month mortgage with a 6% fixed interest rate on a loan of $150,000, you could reduce the term of your mortgage by eight years.

6. Use unexpected income

Send any unexpected windfalls straight to your mortgage company. This includes holiday bonuses, tax returns and credit card rewards. Using this money won’t cut into your regular monthly budget.

Benefits of paying mortgage off early

Many people struggle when deciding whether to pay off their mortgage or build up savings, but in the long run, the benefits of getting free from that mortgage really shine through. For one, having one debt paid off means being able to handle any short-term debts such as credit cards. You also end up saving money if you pay off your mortgage earlier, avoiding additional interest that would have otherwise accrued. Your financial stability is bolstered by cutting out these future payments and also by your ability to better endure turbulent housing market conditions.1

Even if you’re excited to get a mortgage, you might also like the idea of owning a home free and clear. Hey, you’re not alone. A 30-year mortgage can feel like forever—but it doesn’t have to.

What if you could pay off your mortgage early and keep your monthly payment roughly the same?

This might seem impossible, but the truth is, paying off your mortgage early is easier than many people think, thanks to the power of making an extra principal payment (at least once a year).

Now, an extra mortgage payment isn’t going to lower your scheduled monthly payment. This will remain the same until you pay off the loan. It does, however, reduce the amount of interest you pay over the life of the loan.

Basically, your remaining loan balance determines the amount of interest owed. Since extra principal payments reduce your principal balance little-by-little, you end up owing less interest on the loan. And when you owe less interest, you’re able to shave years off your mortgage term.

Let’s say you have a $200,000 mortgage with a 30-year fixed rate of 3.9%. In this scenario, an extra principal payment of $100 per month can shorten your mortgage term by nearly 5 years, saving over $25,000 in interest payments.

If you’re able to make $200 in extra principal payments each month, you could shorten your mortgage term by eight years and save over $43,000 in interest.

But even if you like the idea of making an extra mortgage payment and getting rid of your mortgage early, coming up with the extra cash is easier said than done. Here are a few tips to make this approach more affordable:

1. Put Yearly Windfalls Towards Your Mortgage.  
Rather than waste a work bonus, holiday bonus, tax return or other windfalls on things you don’t need, put the cash to good use and make an extra principal payment.

2. Pay a Little More Towards Your Principal Each Month. 
Another trick is to divide your current mortgage payment by 12, and then add this much to each monthly payment. So if your mortgage payment is $1,400 a month, make an extra principal payment of $116 each month. At the end of the year, you would have made the equivalent of one extra mortgage payment. (*see final word)

3. Round Up Your Mortgage Payments.
Keep in mind, though, that “any” extra amount paid to reduce your principal balance can knock years off your mortgage term. So if you can’t afford an extra mortgage payment, round up your scheduled payments to the nearest $100 amount instead. This small move pays off in a big way.

To illustrate, if you have a mortgage payment of $1,140 and make an extra principal payment of $60 each month (for a total payment of $1,200), you’ll shorten your mortgage term by three years. (*see final word)

Final Word
When making an extra mortgage payment, always specify that you want the extra money applied to “principal only.” If you’re paying your mortgage by check, one check should be for the scheduled payment due, and the second check should be for the principal only. Indicate this in the “Memo” section of the check.

Online payment forms will typically give an option for scheduling extra principal payments.

Whether you’re buying or refinancing a home, the loan experts at First Bank Mortgage can guide you through the mortgage experience and find the right loan for you.

SOURCES:
https://www.bankrate.com/mortgage/prepaying-your-mortgage/

https://www.moneytalksnews.com/6-painless-ways-pay-off-your-mortgage-years-earlier/

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