You can reduce the interest you pay on your mortgage loan, and shorten its term, by refinancing. But refinancing isn’t free—it often costs thousands of dollars. There is a way, though, for you to reduce the amount of interest you pay during the life of your mortgage and reduce the number of mortgage payments you have to pay.
All you must do is pay a bit extra with each of your monthly mortgage payments. These extra payments, even if it’s just $100, will add up. They’ll not only reduce the interest you pay, they’ll also shave months off of your loan’s lifespan.
Here’s a good example: You have 25 years left on a 30-year, fixed-rate mortgage of $200,000. The interest rate on this loan stands at 4.5%.
If you send an extra $100 toward your loan’s principal balance each month, you can reduce the length of your mortgage loan by three years and nine months. At the same time, you can shave off about $21,000 in interest payments if you end up paying off that loan in full.
That’s a pretty impressive difference for just $100 a month. This can be a smart financial move as long as your budget can handle it. Just make sure that you can truly afford the extra payments and that you specify that the extra money is to be applied toward your mortgage’s principal balance.