Paying regular additional payments toward your principal balance provides enormous returns. Borrowers pay extra in a few ways. Paying one additional full payment once per year is probably the easiest to track. Of course, many folks will not be able to pull off this huge extra payment, so dividing one extra payment into twelve extra monthly payments works as well. Finally, you can pay half of your mortgage payment every two weeks. These options differ a little in reducing the total interest paid and shortening payback length, but each will significantly shorten the length of your mortgage and lower your total interest paid.
Some folks just can't make any extra payments. But you should remember that most mortgages will allow additional principal payments at any time. You can benefit from this provision to pay down your mortgage principal when you come into extra money. Here's an example: five years after buying your home, you get a very large tax refund,a large inheritance, or a non-taxable cash gift; , you could apply this money toward your loan principal, which would result in significant savings and a shorter payback period. Unless the loan is very large, even modest amounts applied early in the loan period can produce huge benefits over the life of the loan.
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