Paying down your mortgage faster sounds like a wise financial decision, but you may put yourself at risk for penalties and potential financial strain without fully understanding the process. When deciding to pay extra toward your mortgage, consider if you have other higher interest debts to pay first. Paying down a low-interest mortgage at the expense of saving and investing may cause financial difficulties in the future. With a clear understanding of your financial situation and loan terms, you are able to shrink your mortgage balance before the expected pay-off date.
Read the agreement with your mortgage company to determine if you face prepayment penalties for paying extra. Some loans limit the amount of additional funds you can pay without a penalty. Call your lender if you are unclear about the penalties.Step 2
Specify that you want the extra money to go toward your mortgage principal when you make an extra payment. Extra amounts not specified for the principal may be set aside and held for a future payment.Step 3
Round up your monthly mortgage payments to a comfortable amount. For example, if your payment is $1,610, round it up to $1,700 for an extra $90 each month. If you have more money available, round up to a higher amount such as $2,000.Step 4
Send an extra payment when you have extra money in the budget. Calculate a comfortable amount that leaves enough money in your account to cover regular and unexpected expenses.Step 5
Read your mortgage statement the following month to ensure the extra money is subtracted from the mortgage principal. Call your mortgage company to make corrections if the extra payments aren't applied correctly.Step 6
Track the extra amount you pay each year if your mortgage includes a prepayment penalty. Keep your extra payments under the limit to avoid paying more than you save by paying off the loan early.
- If your goal is to pay off your mortgage faster, another option is to refinance the loan to a shorter term. For example, if you have a 30-year mortgage with 25 years left, you can refinance to a 15-year mortgage.
Video of the Day
- signing check image by jovica antoski from Fotolia.com