real estate

Extra Mortgage Payments Can Pay Off

How much will I save if I make one extra mortgage payment a year?

I am refinancing to a 15-year mortgage from a 20-year. If I pay one extra monthly mortgage payment per year, how many years will this knock off the mortgage?

Making extra payments will cut down on the length of your mortgage and the amount of interest you pay over the life of the loan. The specifics depend on the size of your loan and your interest rate. To figure out your savings, plug your numbers into our How Advantageous are Extra Payments calculator.

For example, making one extra payment on a 15-year, $300,000 mortgage with a 5% interest rate breaks down to about $200 extra per month. If you pay $2,572 each month instead of the required $2,372, for example, you can cut the number of payments down from 180 to 161 (from 15 years to 13.4) and the total interest paid from $127,029 to $111,653. The higher the interest rate, the more you'll save by making extra payments.

But before you rush to make the extra payments, think about how else you could use the money. Interest rates are so low now -- especially since you've just refinanced to a 15-year mortgage -- that there may be better places to put the cash.

Paying down high-interest credit-card debt, for example, should be one of your first priorities -- the interest rate is probably a lot higher than what you're paying on your mortgage. Also make sure you have enough money in an emergency fund so you can avoid getting into debt if you have unexpected expenses. And be sure to contribute at least enough money to your 401(k) to receive your employer's match because that's a 100% return that you won't beat anywhere else.

To learn more about smart uses for the extra money, see Save or Pay Down Debt.

Most Popular

Is the Stock Market a House of Cards?
investing

Is the Stock Market a House of Cards?

The stock market volatility we’ve been experiencing and the apparent disconnect with the broader economy have some investors wondering just that. But …
October 12, 2020
Stock Market Holidays in 2020
Markets

Stock Market Holidays in 2020

Is the stock market open today? Take a look at which days the NYSE, Nasdaq and bond markets take off in 2020.
October 12, 2020
10 Worst Things to Keep in Your Wallet
Scams

10 Worst Things to Keep in Your Wallet

Storing your passport book or card, a spare key, or any of these other important items in your wallet leaves you open to identity theft -- or worse.
October 9, 2020

Recommended

9 Ways to Raise Cash Quickly
savings

9 Ways to Raise Cash Quickly

The $2 trillion coronavirus stimulus package is providing a $1,200 check for millions of Americans.
May 6, 2020
16 Retirement Mistakes You Will Regret Forever
retirement

16 Retirement Mistakes You Will Regret Forever

From saving too little to claiming Social Security too early, there are plenty of ways retirees -- and those planning for retirement -- can sabotage t…
April 10, 2020
Hey, Retirees: Looking for a Tax-Free Source of Income?
real estate

Hey, Retirees: Looking for a Tax-Free Source of Income?

In challenging times, federally insured home equity conversion mortgages offer an outside-the-box income option for those 62 and older.
April 8, 2020
The Pandemic Gives Borrowers a Break on Rates
credit & debt

The Pandemic Gives Borrowers a Break on Rates

Low rates reduce the cost of mortgages and other loans.
April 3, 2020