Added-Principal Payments & Their Effect On the Mortgage

A percentage of each mortgage payment to your mortgagepays down the principal.

A percentage of each mortgage payment to your mortgagepays down the principal.

With just a few extra mortgage payments over the life of a mortgage, a borrower can make a dramatic difference in the amount you pay and how long you pay on the mortgage. Easily, thousands of dollars could be saved over the life of the loan with a few extra added-principal payments. With each extra payment,, you are shortening the length of the mortgage. Remember to denote any extra payments as going toward principal reduction, as opposed to going toward future payments.

The Biggest Impact

The biggest effect on the term of the mortgage is made by extra payments in the early years of a mortgage. In the first few years of a mortgage, a majority of the payment is going toward the interest on the debt. Very little of the payment is applied toward actual principal reduction.

Biweekly Payments

A newer trend in the mortgage industry is the move toward biweekly payments. In this method, the borrower pays half of the monthly payment on his mortgage every other week. At the end of the year, the borrower has made 26 biweekly payments, which is the equivalent of one extra monthly payment per year. One extra monthly payment per year will knock approximately seven years off the life of a 30 year mortgage. This can also be done by simply adding 1/12 of a principal and interest payment to each monthly payment,

Two Extra Payments Per Year

While making one extra payment per year cuts the length of a 30 year mortgage by seven years, making two extra payments per year cuts the length of a 30 year mortgage by approximately 13 years. Simply add one-sixth of a principal and interest payment to your monthly mortgage payment each month to accomplish this goal.

Halving Your Mortgage

The payment on a 15 year mortgage is 40 percent more per month than a 30 year mortgage of the same loan amount. Multiply your current monthly payment, minus any escrow accounts, by 1.4, if you have a 30 year mortgage. The resulting payment plus any escrow account will net you a 15 year mortgage. This is a good alternative to someone who was worried about locking into a higher monthly payment at the start of the loan and wanted the option of the lower 30 year payment if needed.

Please Note

Some mortgages charge borrowers an early payment penalty if the mortgage is paid off early, or before a specific date. Read through the terms of your mortgage to ensure that extra payments will not penalize you in the end.


About the Author

Lynn Lauren has been a professional writer since 1999, focusing on the areas of weddings, professional profiles and the banking industry. She has been published in several local magazines including "Elegant Island Weddings." Lauren has a Master of Business Administration and a Bachelor of Business Administration, both with marketing concentrations from Georgia Southern University and Mercer University, respectively.

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