What happens if you make four extra mortgage payments a year?

Accelerate Mortgage Payoff with Four Extra Annual Payments

Making an additional four mortgage payments each year can significantly impact your financial trajectory and accelerate your mortgage payoff timeline. Here’s how:

Reduced Interest Paid

The primary benefit of extra payments is reducing the amount of interest you pay over the life of the loan. By spreading the payments out over a shorter period, a larger portion of your payments goes towards reducing the principal balance, reducing the amount of interest charged.

Faster Payoff

The additional payments not only reduce interest payments but also accelerate the payoff date. Each extra payment you make reduces the principal balance faster, bringing you closer to paying off the loan entirely. Depending on the loan term, interest rate, and initial loan amount, you could potentially shave years off your mortgage.

Example

Consider a borrower with a $200,000 mortgage, 30-year term, and 4% interest rate. With regular monthly payments, they would pay a total of $44,279 in interest over the life of the loan.

By making four extra $1,000 payments each year, the borrower would:

• Reduce their total interest paid by $9,500
• Pay off their mortgage 4.5 years earlier
• Save nearly $2,000 in monthly payments over the remaining years of the loan

Benefits Summary

In summary, making extra mortgage payments can:

• Significantly reduce the total interest paid
• Dramatically speed up the payoff date
• Free up monthly cash flow sooner
• Build equity in your home faster

Considerations

Before making additional payments, consider the following:

• Ensure you have a stable financial situation and can afford the extra payments consistently.
• Check if your loan agreement allows for extra payments without penalties.
• Determine if there are other financial goals that might take priority, such as saving for retirement or emergencies.

Conclusion

Paying four extra mortgage payments a year is a powerful strategy for homeowners looking to reduce their financial burden and achieve financial freedom earlier. By taking advantage of this approach, you can significantly reduce the overall cost of your mortgage and enjoy the benefits of owning your home sooner.