Why One Extra Payment Changes Everything
Making one additional mortgage payment each year can have a big impact on your finances. You'll pay off your mortgage faster and save thousands of dollars in interest along the way. It's one of the simplest strategies to shorten your loan and own your home outright sooner.
Shorten Your Loan Term
When you make an extra mortgage payment each year, you're paying down the principal faster. That means you'll finish paying off the loan sooner and own your home outright years earlier.
The exact number of years you can shave off depends on your interest rate, but as a general rule, one additional payment per year can cut around 4–5 years off a 25-year mortgage on a $400,000 loan. That's a meaningful chunk of time back in your life.
Save Money on Interest
The sooner you pay off your mortgage, the less interest you'll pay over the life of the loan. By making an extra payment each year, you're reducing the total amount of interest you owe. That money stays in your pocket instead of going to the lender.
Build Equity Faster
When you make an extra mortgage payment each year, you're paying down the principal faster, which means you're building equity in your home at a faster rate. That can be useful if you ever need to borrow against your home's equity or if you decide to sell your home down the road.
More Financial Flexibility
By paying off your mortgage faster, you'll free up more financial flexibility. The money you would have been using to pay off your mortgage can go toward other things—like a vacation home, retirement savings, or whatever matters to you.
Peace of Mind
Knowing that you're 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 you can enjoy your home even more.
How to Make It Happen
Making an extra payment each year is simple. You can round up your monthly mortgage payment or make a lump sum payment once a year. Either way works—it's about finding what fits your cash flow.
Before you start, check with your lender to make sure they'll apply the extra payment to the principal of the loan and not just to next month's payment. Also, make sure you understand the terms and conditions of your mortgage agreement and any implications of prepayment before making any extra payment.
What This Means for You
Making one additional mortgage payment per year is a simple but powerful way to shorten your loan term, save money on interest, build equity faster, and gain more financial flexibility and peace of mind.
It's always a good idea to consult with a financial advisor before making any major financial decisions like this one. If you want to talk through whether this strategy makes sense for your situation, we're here to help.
