One Extra Mortgage Payment a Year Can Add Up to Big Savings

Mortgage and Lending with Canopy Mortgage - Leo Namiot 89769

When you bought your home, you (hopefully) qualified for a mortgage that you could afford and if you stay on top of it monthly, you’ll own your home free and clear in 30 years (or less, depending on your loan terms.) Making extra payments may not even have crossed your mind, but there are actually plenty of reasons why you might want to scrape together just a little bit more to throw at your mortgage each year.

Build Equity Faster

If you make the equivalent of just one extra mortgage payment a year, you will increase your ownership share in your house faster. This can be financially smart if you bought with less than a 20% down payment and are currently making private mortgage insurance premiums. Once you reach 20% equity in your house, you can cancel your PMI policy, saving you hundreds or maybe thousands of dollars a year.  And if you worry that putting money into your house will make it harder for you to accomplish other projects and goals, you can always tap your home equity through a secondary mortgage loan later.

Save on Interest

With an amortized loan, the interest is front loaded, so if you make extra payments, it all goes to the principal, reducing the amount you owe, and the amount interest required. If you plan to stay in your home for the long haul, contributing just one additional mortgage payment a year could save you tens of thousands of dollars in interest. The savings will be realized once you finish paying off your home loan.

Be Out of Debt Earlier

If you contribute one extra payment a year, you will end up paying off your mortgage three to four years early on a 30-year fixed rate loan. Of course, that saves you money, but it also means you will own your home free and clear sooner. This might be important if you’d like to be done with your mortgage before you retire or before you take on some other financial goal, like buying a vacation home or taking bucket list travel trips.

While it might sound daunting to come up with an extra payment every year, there are several ways to do it that make it more manageable. You could save up a little money throughout the year, or you could take an annual bonus or your tax return money and make a one-time principal-only lump sum payment. Another option is to divide your monthly mortgage bill by 12 and add that amount to each payment that year. And finally, you could switch your payments to a bi-weekly schedule. You divide your monthly payment in half and contribute that amount to your lender every two weeks. By the end of the year, that schedule will have added up to one full additional mortgage payment and you likely will not even have felt it in your budget.

The great thing about all these options is that if you ever hit a financial rough spot, you can simply pull back on contributing any extra money without any penalties. You can then use that money for your immediate needs and get back into saving and adding extra mortgage payments when the issues get resolve.

Read more mortgage and home articles @Mortgage and Home News

Leo Namiot

Mortgage Lender


#mortgagelender #leolends #mortgagenews #housingnews 

Comments (3)

Gwen Fowler SC Lakes & Mountains 864-710-4518
Gwen Fowler Real Estate, Inc - Walhalla, SC
Gwen Fowler Real Estate, Inc.

One extra payment works great but we have decided all extra money i.e. tax refunds, birthday gifts of cash, etc. go into an account for emergencies and anything that has been in the account for 12 months is added to our monthly payment.  We have reduced a 30-year mortgage to less than 5 years doing this.  I want the house payment to go away before I retire.

Mar 01, 2022 08:06 AM
Leo Namiot -

That is amazing!  Good for you :-) 

Mar 22, 2022 08:27 PM
Will Hamm
Hamm Homes - Aurora, CO
"Where There's a Will, There's a Way!"

Hello Leo and so true to knock off years if you make 13 payments a year instead of 12.  Can i reblog this sometime down the road?


Mar 01, 2022 08:47 AM
Leo Namiot -
Canopy Mortgage - Leo Namiot - Saint Augustine, FL
More than just great rates

Hi Will,  Sure you can share the blog. 

Mar 22, 2022 08:26 PM