Save mortgage interest with extra principal payments.
The monthly interest due on a mortgage is based on the remaining principal balance. Starting to reduce the principal on a mortgage significantly reduces the time it will take to pay off the loan and also reduces the total amount of interest paid on the mortgage. A plan of regular principal reduction can reduce the interest paid by a significant amount.
Instructions
1. Enter your mortgage loan amount, interest rate and start date in a mortgage calculator like one offered online by Bankrate.com. For example, a $150,000 mortgage with a fixed 7 percent rate for 30 years has a monthly principal and interest payment of $998.
2. Select or show the amortization table of the loan. Make a note of the total interest paid over the 30-year term of the loan. For a $150,000 mortgage, the total interest paid is $209,263.
3. Determine how much you can afford to pay in addition to your mortgage payment every month and enter the amount in the mortgage calculator under "Extra Payments."
4. Select "Recalculate" for the mortgage amortization calculator and see how much the extra payments will shorten the loan payoff time and reduce the interest paid. For example, an extra $200 paid monthly toward the example mortgage of $150,000 will reduce the loan payoff time by 11 years. The total interest paid would be $119,988, a savings of almost $90,000.
5. Make the additional payment to your mortgage every month. On your mortgage payment slip, mark the extra payment as "Principal Reduction."
Tags: interest paid, your mortgage, total interest, total interest paid, your mortgage payment
