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I had always heard that making small extra payments on the principle really decreases the loan time but I don’t know much about it. If I paid $ 50 extra a month, what would that do?

6 Thoughts on My mortgage is $750 a month. If I pay an extra $50 on the principle every month, what will that do?
  1. Reply
    oceancity714
    March 1, 2014 at 7:13 am

    That would increase the equity in your home quicker, decrease the interest amount over the life of the loan by decreasing the amortized payments. You can also check into paying bi-weekly (easier if you have it set up with a banking institution for discipline reasons); that will take 9 years off a 30 year loan and save you many thousands in interest or pay once a year the $ 750.00 mortgage payment which will also save you but not as much as bi-weekly.

  2. Reply
    Ron Berue
    March 1, 2014 at 7:52 am

    It would not only reduce the time on the mortgage, it would reduce the principal & save you A LOT of interest.

    It can be done much easier and smoother – with the mortgage company inmind – if you used an amortization schedule.

    Using an amortization schedule puts you AND the mortgage company “on the same page”.

    IF you received an amortization schedule at the time of closing, call the agent who you bought the property from and ask him/her how it works.

    He/She should know how to properly explain it – without charging you.

    Thanks for asking your Q! I enjoyed answering it!

    VTY,
    Ron Berue
    Yes, that is my real last name!

  3. Reply
    big lew
    March 1, 2014 at 8:44 am

    it will decrease what you owe,plus decrease the interest payment in the loan itself. i’ve done this on my house yrs ago and still do this on every new car that i get. also i’ve been able to skip payments just by paying more.

  4. Reply
    fdlovell
    March 1, 2014 at 8:47 am

    If you want to be ahead of the game don’t pay on your principal. This has already been researched. If you take that $ 50 and put it into a mutual fund each month you will acquire a larger cash increase. They researched this and found the difference between paying on principal and paying into a mutual fund was about $ 8,000 difference over the period of the mortgage.

  5. Reply
    Rush is a band
    March 1, 2014 at 9:44 am

    Let’s actually answer your question. I used an amortization calculator and ASSUMED that you had a 30 year fixed rate loan at 6% and that your payment was only principal and interest. That told me that your mortgage amount was approximately $ 125,000. Then I recalculated the payment schedule using $ 800 a month instead of the $ 750 per month.

    The results:
    You would pay off your loan in exactly 25 years (instead of 30) saving you 5 years of payments. The interest total on the original 30 year loan was $ 144,900 and the interest total on the shorter loan was $ 116,700 for a savings of $ 28,200.

    You can find amortization calculators many places on the web and do all of these types of calculations on your own.

    In general, paying more principal will pay off your loan earlier and save you a lot of interest. I don’t disagree that you might do ‘better’ financially to put that money in investments, but I would suspect that most people would end up spending it anyway. There is also something very emotionally satisfying to owning your own home outright.

    So, if you have an emergency fund, if you are already saving for retirement then go ahead and send that extra $ 50 a month to the principal and own your home earlier!

    good luck!

  6. Reply
    Elissa
    March 1, 2014 at 10:13 am

    I don’t have enough expertise to tell you what your extra $ 50 would do, but BE CAREFUL: Some mortgage companies actually penalize homeowners for paying down their mortgage faster than scheduled.

    Call your mortgage company first, and make sure your extra payments won’t result in hundreds of dollars of penalties. This is how some people caught in the mortgage crisis got burned.

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