My husband and I have owned our home for nearly five years. In addition to saving and investing some of our income, we’ve made paying off our mortgage sooner a priority. While we have a 30-year mortgage, we’d prefer not to spend 30 years paying off this debt.
Luckily, we’ve made money moves that have allowed us to shave three years off our loan payments. We hope to continue making progress over the next several years. I’ll explain how we’re eliminating our mortgage debt faster — and show you how you can do this, too.
Additional payments toward the loan’s principal made a difference
Over the last few years, we have made extra mortgage payments in addition to our regular ones. We applied any additional payments to the loan’s principal (the money we borrowed when taking out the loan). Doing this can shorten the length of the loan and save on interest.
Some people choose to make regular extra payments throughout the loan’s life. For example, if their regular mortgage payment is $1,650, they might pay $1,800 a month instead. However, our additional payments were more sporadic and the amounts have varied. This approach puts less pressure on us while still allowing us to reduce our loan balance.
Whenever we had extra money, we used it to make an extra principal payment. In some months, we paid only an extra $20; in others, we paid an extra $300. There were quite a few months when we didn’t make any extra payments at all due to financial constraints. Despite our sporadic approach, we’re three years ahead on our loan timeline.
Here’s a tip: If you make additional payments on your loan, ensure the money goes to the principal. If you don’t specify this, your mortgage lender may instead apply it to the interest due. You want it applied to the principal because interest charges are added to the principal balance, so reducing the principal faster reduces the total interest you pay.
More: Check out our picks for the best mortgage lenders
We’ve trimmed nearly $11,000 off our loan balance
In addition to being three years closer to paying off our debt, I was curious to see how much money we’ve saved due to our efforts. I reviewed the amortization schedule for our loan. This schedule breaks down the principal and interest details for each payment throughout the loan.
This allowed me to see where our loan balance would stand today had we only made the minimum payments due every month. Then, I looked at our current loan balance. I subtracted both numbers to determine our total savings.
Thanks to all the extra payments we’ve made over the past few years, we are nearly $11,000 ahead on our home loan. These savings free up money for other financial goals.
Are you looking for a way to trim your loan balance and the length of your loan? You may want to follow a similar approach. Here are a few tips for success.
- Apply extra payments to the principal: You can specify this when making an online payment through your lender’s website. If you’re writing a physical check, you can specify on the memo line that you want the extra payment applied to the principal.
- Verify whether your lender charges prepayment fees: Some mortgage lenders charge prepayment penalties when borrowers pay their loans off early. Prepayment penalties are rare, but it’s worthwhile to find out ahead of time so you know what to expect and aren’t surprised by additional fees when you finally pay off your mortgage.
- Pay what you can, even if you make only sporadic extra payments: Don’t feel pressure to make extra payments if it’s not within your budget. Do what you can, even if you can only afford to make additional payments occasionally. Any progress, even small, will save you money in the long run.
If you own a home and have a mortgage, you may want to explore whether this strategy could help you pay off your loan sooner. If you plan to buy a house soon, you can review current mortgage rates before getting preapproved for a home loan.
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