The Benefit of Added Payments on Your Mortgage

Column distributed by Hearst Connecticut Media Group.

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“Mortgage rates may be declining, which puts new homebuyers in a better position than just a year ago.”

“Here is an example, using an online mortgage amortization calculator (in this case, I’m using one found at calculator.net (in this case, I’m using one found at calculator.net).”
“Say you have a 30-year fixed mortgage at 5.5% with a balance of $250,000. Your regular payments would be $1,419.47. In 30 years (October 1, 2054), you will have made 360 payments of $1,419.47 for a total of $511,010. Of that amount, you would have repaid the $250,000 loan and paid the bank interest of $261,010.”
“What if you added just $100 extra to that monthly mortgage payment each month, making it $1,519.47? You would pay off your $250,000 debt four years and five months earlier, saving yourself $44,877 in interest payments.”
“If you were able to make an extra payment of $500 a month ($1,419.47 plus $500), you would save 13 years and five months of payments and $129,580 in interest payments. Your total interest payments would be reduced from $261,010 to $131,430.”

“Another alternative is to make occasional payments. Say you receive an annual bonus check each January. For the next three years, each January, you pay an extra $10,000 to the bank. That cuts approximately $90,000 off your interest payments and saves you seven years off your loan, so that your loan would be fully paid by October 2047, using the Extra Payments Calculator provided by Freddie Mac.”
“But, if you wait to use those $10,000 bonus payments until January 2034, 2035 and 2036, your savings will be about one-half less -- only $48,860, saving you four years and seven months instead of seven years in the earlier example, illustrating the time value of money.”