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If you’re a homeowner, your mortgage is likely one of your biggest monthly expenses. But what if you could trim years off your loan and save thousands of dollars in interest? The answer lies in one simple strategy: making extra payments towards your principal. In this guide, we’ll explore the benefits of paying extra principal on your mortgage, why it matters, and how it can positively impact your financial future.
When you make a mortgage payment, part of it goes toward interest and part toward the principal (the amount you borrowed). By directing extra money to the principal, you reduce the outstanding balance faster. This lowers the interest charged in future months, since interest is calculated on the remaining balance.
Putting more money towards the principal can offer the following perks:
The most significant benefit of paying extra principal on your mortgage is the potential to save a substantial amount of money on interest.
Interest is calculated based on the outstanding principal, so reducing that balance ahead of schedule means you’ll accrue less interest over time. Even small, regular extra payments can lead to major savings over the life of your loan.
Another major advantage is that you can pay off your mortgage faster.
When you pay extra principal, you’re effectively reducing the total amount you owe, which means you may finish paying off your loan years ahead of schedule. This not only saves you interest, but also frees up your budget sooner for other financial goals.
Home equity is the difference between your home’s value and your outstanding mortgage balance. By paying extra principal, you increase your home equity at a faster rate, which can be beneficial if you want to refinance your mortgage, take out a home equity loan, or sell your home in the future.
Knowing you’re ahead on your mortgage payments can provide peace of mind. Reducing your debt load faster can make you feel more secure and less worried about market fluctuations or unexpected expenses.
A lower mortgage balance means you’ll have more options in the future. Whether you want to refinance at a better rate, sell your home, or tap into your home equity, paying extra principal gives you greater financial flexibility.
Ready to start reaping the benefits of paying extra principal on your mortgage? Here are some strategies to consider:
Rather than making one monthly payment, consider dividing your payment by half and paying every two weeks. This results in 26 half-payments each year, the equivalent of 13 full payments instead of 12. That extra payment goes straight to your principal, helping you pay off your loan faster.
A simple way to pay extra principal is to round up your monthly payment. For example, if your payment is $1,432, round up to $1,500. The difference goes directly to your principal.
Whenever you receive extra money — such as a work bonus, tax refund, or gift — consider applying some or all of it toward your mortgage principal. Even occasional lump-sum payments can make a significant difference.
Many lenders allow you to set up recurring extra payments. Automating the process ensures you consistently chip away at your principal without having to think about it each month.
While the benefits of paying extra principal on your mortgage can be substantial, consider the following:
You can pay extra principal toward nearly all common mortgage types. Here are the most prevalent mortgage types where paying extra principal is allowed and beneficial:
Jumbo loans are often used for high-value homes. They usually allow extra principal payments. Always check for any prepayment clauses in your specific agreement.
While you can (and should, if possible) pay extra toward principal during both the interest-only and amortizing periods, it’s especially important once the loan begins amortizing.
Important Reminders:
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Specific categories of buyers will find making principal payments particularly useful:
The benefits of paying extra principal on your mortgage are clear: lower interest costs, faster loan payoff, increased equity, and greater financial flexibility. While it’s important to balance this strategy with other financial priorities like retirement savings and emergency funds, homeowners who commit to extra payments often find themselves debt-free years ahead of schedule.
By understanding how even small additional payments can make a big difference, you can take control of your mortgage and build long-term wealth.
Are you in need of financing assistance in the Pacific Northwest? If so, we’re here to help. Sammamish Mortgage has been providing various mortgage programs to borrowers throughout Washington, Oregon, Idaho, Colorado, and California since 1992. Use our Free Rate Quote Tool or our online mortgage calculator to determine your rate and estimated monthly payments. Contact us today with any questions you have about mortgages. Or, visit our website to get an instant rate quote.
Extra payments lower the total interest charged over the life of the loan.
Yes, consistent extra payments can help you pay off your mortgage years earlier.
Most modern mortgages allow prepayments without penalty, but check your lender’s terms.
Even small amounts, like $50 or $100, can make a big difference over time.
Yes, applying bonuses or tax refunds directly to principal accelerates payoff.
Your scheduled payment stays the same, but your loan balance decreases faster.
Yes, but interest will be calculated on a smaller balance, reducing future costs.
Not directly, but reducing debt can positively impact your overall financial profile.
Yes, extra payments are optional and can be paused anytime.
It depends on your risk tolerance and potential investment returns compared to interest savings.
Yes, but you must specify that your extra payment goes toward principal.
Lower balances and higher equity can improve refinancing options and rates.
Yes, even modest extra payments can create long-term savings.
You save money, gain equity, and achieve financial freedom sooner.
Whether you’re buying a home or ready to refinance, our professionals can help.
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