Making regular additional payments toward your principal can yield enormous savings. Borrowers make this happen in a few ways. Making 1 extra payment once a year is perhaps the easiest to keep track of. If you can't pay an additional whole payment all at once, you can divide your payment by 12 and pay that additional amount monthly. Another very popular option is to pay half of your payment every two weeks. The effect here is that you will make one extra monthly payment in a year. Each of these options produces different results, but each will significantly reduce the duration of your mortgage and lower the total interest paid over the life of the loan.
Some borrowers just can't make any extra payments. But it's important to note that most mortgage contracts will allow additional payments at any time. Whenever you get some extra money, you can use this rule to make an additional one-time payment toward mortgage principal.
Here's an example: five years after buying your home, you get a huge tax refund,a very large legacy, or a cash gift; , paying a few thousand dollars into your mortgage principal can reduce the period of your loan and save enormously on mortgage interest paid over the duration of the loan. Unless the mortgage loan is very large, even a few thousand dollars applied early in the loan period can yield huge savings over the life of the loan.
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