How to Save Thousands on Your Mortgage

This week, a client asked me if they could make extra payments on their mortgage and how it would impact the total interest they would pay over the life of the loan. The numbers were dramatic, so I thought I would share this example of how paying extra towards your principal can have a huge impact. 

Nancy had just closed on a 30-year fixed-rate mortgage of $600,000 at 6.5%. Her principal and interest was $3,792, and her total mortgage payment, including taxes and insurance, was $4,642. First, we looked at paying an extra payment of $4,642 once a year. That would save her just under $300,000 in interest over the life of the loan, and she would pay her loan off in 23 rather than 30 years. Those are big numbers!

Next, we looked at rounding her payment to $5,000 per month. She felt it might be easier to do that than come up with an extra payment each year. That would save her around $292,000 in interest, so she would pay her loan off in 23.5 years—also a huge savings.

Finally, we increased her payment to $4,800, which she felt would be manageable by making minor adjustments to her spending. Even just paying an extra $158 each month towards principal saved her just under $150,000 and paid off her mortgage in a little less than 27 years, which is still a substantial savings.

If you can find a way to pay even just $100 or $200 more towards principal each month, you can dramatically decrease the amount of interest that you pay over the life of the loan. Of course, you need to make sure that your mortgage does not have a prepayment penalty, but the majority of mortgages do not. Please get in touch with me with any questions or to run numbers for your specific situation.