What happens if you pay an extra $500 a month on your mortgage?

Unlock the Benefits of Additional Mortgage Payments: Accelerate Payoff and Save Thousands

Paying an extra $500 towards your mortgage each month can have a profound impact on the terms of your loan and your overall financial well-being. Here’s how it works:

Shorten Loan Term Significantly

The additional payments reduce the principal balance more quickly, leading to a shorter loan term. For example, with a monthly surplus of $500, a 30-year mortgage can be paid off in just 24 years and 11 months.

Substantial Interest Savings

Accelerating payoff through extra payments results in significant interest savings. In the case of the 30-year mortgage example with an extra $500 monthly payment, the borrower would save a remarkable $43,174 in interest charges.

Improved Cash Flow Later

Paying off your mortgage sooner frees up a significant portion of your income that was previously allocated to mortgage payments. This increased cash flow can be used towards other financial goals, such as retirement savings, investments, or reducing other debts.

Early Home Equity

With extra mortgage payments, you build equity in your home faster. This increased equity can provide financial flexibility in the future, such as allowing you to access home equity loans or lines of credit at more favorable rates.

Steps to Make Extra Payments

To start making extra mortgage payments, contact your mortgage servicer. They can provide you with instructions on how to allocate additional funds towards the principal. Ensure that your extra payments are clearly marked as such to ensure they are applied correctly.

Benefits Go Beyond Savings

While the financial benefits of extra mortgage payments are substantial, there are also psychological advantages. Making progress towards paying off your home can be highly motivating and can help you achieve greater financial discipline and peace of mind.

Conclusion

Paying an extra $500 on your mortgage monthly is a smart financial move that can significantly shorten the loan term, save thousands of dollars in interest, and improve your long-term financial well-being. If you have the financial means to do so, consider adding this strategy to your mortgage plan.