Is it worth paying an extra $100 a month on a mortgage?

Is It Worth Paying an Extra $100 a Month on a Mortgage?

Making an additional mortgage payment of $100 each month can have a significant impact on your finances. By shortening the loan duration and reducing interest expenses, this small monthly investment can save you thousands of dollars over time.

How Much Can You Save?

Paying an extra $100 per month on a 30-year, $200,000 mortgage at a 4% interest rate could save you $26,559 in interest and cut nearly five years off your loan term. This results in a total interest paid of $102,941 instead of $129,500.

Doubling Up

Doubling your extra monthly payment to $200 would further increase your savings. Over the same loan period, you could save $55,123 in interest and shorten your loan duration by almost 10 years. This reduces your total interest paid to $74,877.

How to Make Extra Payments

There are several ways to make extra mortgage payments:

• Add the extra amount to your regular monthly payment.
• Send in an additional payment every other week or month.
• Make a lump sum payment once a year.

Benefits of Extra Mortgage Payments

In addition to saving money, making extra mortgage payments has other benefits:

• Build equity faster: Paying down your mortgage principal sooner increases your homeownership equity.
• Improve your credit score: A higher percentage of on-time payments and a lower balance-to-credit ratio can boost your creditworthiness.
• Free up cash flow in the future: By shortening your loan term, you’ll free up more money that can be used for other financial goals, such as retirement or investments.

Consider Your Financial Situation

While making extra mortgage payments can be beneficial in the long run, it’s important to consider your financial situation before committing to this strategy. Ensure that you have a stable income and a comfortable level of savings to cover any unexpected expenses.

Conclusion

Paying an extra $100 a month on your mortgage is a smart move that can save you tens of thousands of dollars in interest and shorten your loan duration significantly. By doubling your extra payment, you can further increase your savings and unlock even greater financial benefits. Consider your financial situation and weigh the benefits before making a decision.