There are a few different methods to prepay a mortgage, including the following:

• Pay an additional amount toward your mortgage each year.
• Include the additional money with each payment.
• After receiving a windfall such as an inheritance or other unexpected money, use the lump amount.
• One or more of the combinations described above.

How Much Money Would I Save If I Made Extra Principal Payments On My Mortgage?

The advantage of making more principal payments on a mortgage is wider than lowering the interest paid each month by a minuscule amount at a time. It results from making more principal payments on your mortgage to reduce your outstanding loan balance, which in turn reduces the total amount of interest you will be responsible for paying over the course of the loan's term.

The mortgage amortization schedule calculator will assist you in determining how the addition of additional payments will affect your mortgage. To expose the portion of the page that enables you to calculate the impact of extra payments, click the "Show amortization schedule" button. Is prepaying your home mortgage a good idea?

Drawbacks Of Prepaying My Mortgage

There is the possibility of incurring additional costs by prepaying. To begin, keeping your cash in your house reduces your liquidity and leaves you with less opportunity for maneuvering around within your budget. Put another way, you will have less cash to spend toward things like raising the amount you contribute to your 401(k) plan or paying off debt with a high-interest rate, for example. These monetary objectives may result in a better return on your investment than others.

The opportunity cost of not being able to invest that more money elsewhere is another factor to consider. An average return of 10% per year has been generated by investing in the stock market during the previous four decades. The overall bond markets have seen close to an average yearly return of 8% over the last several years. Consider every aspect of your current and future financial situation before answering the question, "Can I payback my mortgage?" Here are some crucial questions to consider:

• After paying all of the required bills, is your monthly budget already tight?
• Is the amount of money you make sporadic and unpredictable?
• How long do you intend to remain a resident of this house?
• How much money do you put away each month for your retirement?
• Have you set aside enough money to cover three to six months' worth of your family's living costs in case of an emergency?
• Do you have many loans or credit cards with high-interest rates?

Before You Prepay Your Mortgage, Be Sure You Do These Things

It's a good idea to work toward prepaying off your mortgage early, but before you do so, you should make sure you've reached three other important financial milestones first:

Get the match

You are taking advantage of an immediate return from a workplace retirement plan if you receive the full employer match for your contributions. The normal corporate match is between 50 and 100 percent of your contribution, up to a certain cap (often between 3 and 6 percent of your annual salary). Until you are ready for retirement, you should prioritize putting whatever additional money you have into that account. Contributions to retirement plans qualify for a tax deduction, and the longer your savings have to accumulate interest and dividends, better.

Debt rate

If you have a credit card interest rates of 16% or more, paying off a mortgage with a 4% interest rate is a waste of money.

Plan for emergencies

If you have at least three to six months' worth of costs stashed away in savings, you should be able to weather the majority of storms.

Take A DIY Approach

Let's imagine you wish to include an additional sum in your budget each month so that you may pay off your debt early. One strategy is to make one additional payment on the principal and interest of the mortgage each year. You could choose one month out of the year and make two payments during that month, or add one-twelfth of a principal and interest payment to each payment you make. After one year, you will have completed 13 payments.

Make sure that any extra principal payments you make are designated to go directly toward the main balance of your mortgage. In most cases, a lender will either provide this choice in an online format or a procedure for designating payments made by check to be applied only to the principal balance. Ask your lender for instructions.