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The Power of One: How Making One Additional Mortgage Payment a Year Can Save You Thousands

January 30, 2023 | Posted by: Matt Broom-Hall

The Power of One: How Making One Additional Mortgage Payment a Year Can Save You Thousands

Making an additional mortgage payment each year can have a significant impact on your finances and can help you pay off your mortgage faster and save thousands of dollars in interest. Here are a few benefits of making one additional mortgage payment per year:

  1. Shorten the loan term: By making an extra mortgage payment each year, you will be paying down the principal of the loan faster. This means that you will be paying off the loan sooner and will be able to own your home outright sooner. The exact number of years that you can shave off a $400,000 mortgage with a 25-year amortization by making one additional payment each year will depend on the interest rate of your mortgage. However, as a general rule of thumb, making one additional mortgage payment per year can shave off around 4-5 years off a 25-year mortgage.
  2. Save money on interest: The earlier you pay off your mortgage, the less interest you will have to pay. By making an extra mortgage payment each year, you will be reducing the amount of interest you will have to pay on the loan.
  3. Build equity faster: When you make an extra mortgage payment each year, you are paying down the principal of the loan faster. This means that you will be building equity in your home at a faster rate. This can be beneficial if you ever need to borrow against your home's equity or if you ever decide to sell your home.
  4. Have more financial flexibility: By paying off your mortgage faster, you will have more financial flexibility. You will be able to use the money you would have been using to pay off your mortgage to invest in other things, such as a vacation home or retirement savings.
  5. Peace of mind: Knowing that you are paying off your mortgage faster and saving money on interest can give you peace of mind. You won't have to worry about the stress of a long-term mortgage and can enjoy your home even more.

Making an additional mortgage payment each year can be a simple but powerful way to pay off your mortgage faster and save money on interest. You can make an extra payment each year by simply rounding up your monthly mortgage payment or by making a lump sum payment once a year.

It's important to check with your lender to make sure that they will apply the extra payment to the principal of the loan and not to the next month's payment. Also, make sure that you understand the terms and conditions of your mortgage agreement and the implications of prepayment before making any extra payment.

In conclusion, making one additional mortgage payment per year can provide many financial benefits. It can shorten the loan term, save money on interest, build equity faster, give more financial flexibility and peace of mind. It's a simple but powerful way to pay off your mortgage faster and save money on interest.

*It's always a good idea to consult with a financial advisor before making any major financial decisions such as this one.

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