Paying off your mortgage as quickly as possible is a great way to save money, build equity and free up funds for other investments that can lead to financial security.
Both lump sum payments and monthly payment increases are effective ways to pay off your mortgage sooner. Normally, when you make a monthly payment, it’s split between principal and interest. But when you increase your monthly payment, the extra amount goes toward principal only. Over time, these extra principal payments end up shortening your amortization and reducing total interest paid.
However, if you want to achieve bigger savings, sooner, lump sums are the way to go. When you make a lump sum payment, ALL the money immediately goes toward principal, instead of just a little extra each month. The sooner you decrease the principal, the less interest you end up paying. So making a lump sum payment will shorten your amortization and reduce your total interest cost by a greater amount than making a monthly payment increase. And of course, the sooner in the life of your mortgage you make the lump sum payment, the more you save!
I’d be happy help you explore this and other money-saving mortgage tips. Please talk to me today for a no-charge consultation!