If you buy a home, chances are good you're going to get a mortgage to do it. Getting a mortgage loan means you're committing to a monthly payment that could follow you around for decades. When faced with this big obligation, you may want to try to repay your debt sooner rather than later.
It can feel daunting to figure out how to pay off such a big sum of money ahead of schedule. But what if you just pay an extra $100 a month toward your loan? Would that make a difference? Here's what you need to know.
How much of an impact can $100 extra make on your mortgage payment?
Making an extra $100 monthly payment on your mortgage loan can have a surprisingly big impact on the time that it takes you to become debt-free.
Let's say you took out a 30-year mortgage at 6.5% for $300,000. If you made an extra $100 monthly mortgage payment from the start of the time that you borrowed, you would end up repaying your debt a whopping four years faster than if you did not make an extra payment. In the process, you would save yourself $60,995 in interest.
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An extra $100 per month can make a bigger impact than you might think with your loan because when you pay this additional sum every month, the entire amount goes toward bringing down your principal balance. Usually, a good portion of each regular monthly payment goes toward just reducing the interest that you owe. But any extra you send in can actually drop your balance. That lower balance in turn means you pay less interest the next month since you don't owe the bank quite as much money.
Where can you find an extra $100 to pay extra to your mortgage?
If you want to take advantage of the opportunity to pay off your home loan years sooner, there are several potential ways you can find an extra $100 monthly.
One option would be to pick up a side gig, like driving for Uber, selling products online, or launching a blog or podcast. Side hustlers earn an average of $483 monthly, so you could work just a few hours in the month to earn an extra $100 to repay your mortgage.
Another option would be to cut spending elsewhere. If you dine out four times a month and pay $50 per meal out, give up two of those meals and redirect the extra $100 to your mortgage. Or if you're paying for an expensive gym membership you don't use much, see if you can switch to a cheaper one or give it up altogether.
The key is to go through your budget, find a sustainable cut you can make and stick to, and redirect that cash toward your mortgage. When you become debt-free years earlier, you'll be glad you made the effort.
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FAQs
If you made an extra $100 monthly mortgage payment from the start of the time that you borrowed, you would end up repaying your debt a whopping four years faster than if you did not make an extra payment. In the process, you would save yourself $60,995 in interest.
What happens if I pay an extra $100 on my mortgage every month? ›
If you pay $100 extra each month towards principal, you can cut your loan term by more than 4.5 years and reduce the interest paid by more than $26,500. If you pay $200 extra a month towards principal, you can cut your loan term by more than 8 years and reduce the interest paid by more than $44,000.
How much faster will I pay off my mortgage if I pay an extra $500 a month? ›
By paying extra $500.00 per month starting now, the loan will be paid off in 17 years and 3 months. It is 7 years and 9 months earlier. This results in savings of $122,306 in interest.
How much extra should I pay on my mortgage to pay it off sooner? ›
Making an extra mortgage payment each year could reduce the term of your loan significantly. The most budget-friendly way to do this is to pay 1/12 extra each month. For example, by paying $975 each month on a $900 mortgage payment, you'll have paid the equivalent of an extra payment by the end of the year.
What happens if I pay an extra $2000 a month on my mortgage? ›
The additional amount will reduce the principal on your mortgage, as well as the total amount of interest you will pay, and the number of payments.
How to pay off a 30-year mortgage in 10 years? ›
Refinance into a shorter term
When you refinance your home, you can pay off your home faster by replacing your 30-year mortgage with one that's a shorter term. With a mortgage refinance, you can shorten your loan term by selecting a 20, 15, or even a 10-year loan.
How to pay off a 15 year mortgage in 5 years? ›
There are some easy steps to follow to make your mortgage disappear in five years or so.
- Setting a Target Date. ...
- Making a Higher Down Payment. ...
- Choosing a Shorter Home Loan Term. ...
- Making Larger or More Frequent Payments. ...
- Spending Less on Other Things. ...
- Increasing Income.
If you pay an extra $200 a month toward the principal, you can cut your loan term by more than 5½ years and save $98,277 in interest. If you increase the extra payment by $400 per month, you not only shorten your mortgage by nine years, you save $159,602 in interest.
What happens if I pay an extra $500 a month on my mortgage principal? ›
Making additional principal payments will shorten the length of your mortgage term and allow you to build equity faster. Because your balance is being paid down faster, you'll have fewer total payments to make, in-turn leading to more savings.
What happens if I pay an extra $300 a month on my mortgage principal? ›
When you pay extra on your principal balance, you reduce the amount of your loan and save money on interest. Keep in mind that you may pay for other costs in your monthly payment, such as homeowners' insurance, property taxes, and private mortgage insurance (PMI).
But if you have a relatively recent loan, you're likely looking at tens of thousands of dollars in savings and cutting as much as eight years off the life of your loan. Obviously, not everyone can afford to make two extra mortgage payments a year. You're basically increasing your housing costs by 16%.
How to pay off a 300k mortgage in 5 years? ›
How to Pay Off Your Mortgage Faster: 5 Tips
- Pay off all your consumer debt (think credit cards, car notes and student loans).
- Build an emergency fund worth 3–6 months of your typical expenses.
- Begin investing 15% of your income for retirement.
- Start putting money aside for your kids' college (if you have kids).
The Downside of Mortgage Prepayment
Prepaying your mortgage ties up your funds in your home, potentially leaving you with less liquidity for other financial needs or opportunities.
Is it better to pay half your mortgage twice a month? ›
Biweekly mortgage payments
There is an alternative to monthly payments — making half your monthly payment every two weeks. When you make biweekly payments, you could save more money on interest and pay your mortgage down faster than you would by making payments once a month.
Does paying twice a month reduce interest? ›
Bottom line. If done right, making biweekly mortgage payments leads to less interest paid over the life of your loan, saving you money and whittling your balance down sooner. However, you must confirm that the extra payments are being applied to the principal and that you're not subject to prepayment penalties.
What happens if I pay 3 extra mortgage payments a year? ›
When you pay extra on a mortgage, you're paying above and beyond the regular monthly installment. The money you send is meant to apply directly to the loan principal, not the interest. This allows you to pay down your loan sooner and save money on interest.
What are the pros and cons of adding $100 a month to your fixed rate mortgage payment? ›
Extra payments mean you will pay off the loan sooner. By making these extra payments you will ultimately live mortgage free sooner. Cons: the main con associated with adding $100.00 a month to your fixed mortgage payment is the opportunity cost of using that $100.00 in a different way.
Is it worth paying extra off your mortgage each month? ›
Overpaying your mortgage could help you cut your loan-to-value (LTV). This is the proportion of your property price covered by your mortgage. It goes down if your property value goes up and as you pay off more of your mortgage. That's why overpaying can help bring it down.
What happens if I overpay my mortgage every month? ›
Overpayments do one of two things to your mortgage balance, depending on the amount. These reduce your monthly payment. That means we recalculate your monthly payment but your term stays the same. These overpayments help you pay off your mortgage sooner but your monthly payment stays the same.
How many years can I save on my mortgage by paying extra? ›
As a general rule of thumb, making one extra mortgage payment per year at the start of your 30-year mortgage can shorten the term by approximately four to five years. You could potentially pay off the mortgage and own the home outright in 25 to 26 years instead of 30.
