You may have heard that it is better for you to try and overpay your mortgage every month. That’s true. It is more cost effective to pay off your mortgage faster than the 15 to 30 years outlined in your original home loan. What’s interesting is that most people don’t do it, even if they can afford to pay off more every month.
Whether its Boca Raton luxury homes, Palm Beach Gardens luxury homes or a small Oviedo real estate property, paying more than the minimum amount due each month is beneficial to home owners across the state of Florida for many reasons.
Why Pay More
Home owners typically take out a 15 or 30 year mortgage on Boca Raton luxury homes, Palm Beach Gardens luxury homes or Oviedo real estate properties, and expect to be paying the same amount for the life of the loan. During the first few years of the mortgage, the majority of the monthly payment is directed toward paying off the interest rather than principal of the loan.
Paying a little extra every month can save you thousands of dollars when consider the total cost over the full term of the loan. If you choose to pay extra toward the principal of your mortgage, you are decreasing the total amount of interest that you pay over the lifetime of the loan.
How to Work in Extra Payments
Pay Little Extra Each Month: One of the easiest ways to pay off your mortgage a little faster is to increase the amount you send in by $25-$50. This slight increase in your monthly payment can be added into your online bill payment or check amount without changing anything on your mortgage paperwork. What’s beneficial about this is that it allows you to be flexible. You can send in extra money every month when you can without an obligation to do it.
Create Biweekly Payments: Another way to pay more money toward your mortgage is to create biweekly payments. This means you will be paying half of your mortgage every other week. Many people like this type of payment method particularly if they are paid on a biweekly basis. With this type of pay-off mortgage system, an extra full payment will be made toward your mortgage every year since 26 half payments totals 13 full payments.
Identify Where to Apply the Money
When adding more money to your monthly mortgage payment, it is important to indicate how you would like the extra money to be applied to your mortgage. This tells your mortgage lender where to use the money since each mortgage plan applies payments in different ways. The way the money is applied can produce different results, and you want the one that will save you the most money.
Applying to Principal: Home owners can pay off their mortgage faster if the extra money is deducted from the principal balance. Be aware that some lenders will automatically apply the extra money toward your next payment only. This means that you’ll pay off the same amount of money over time. You should be able to tell your lender where you would like to apply the excess amount of money, but don’t assume that they’re doing what you want. Contact your lender to verify.
Penalties for Prepayment: Some mortgage have a prepayment penalty clause that requires extra money be paid if the loan is being paid back faster than specified. The reason this is worked into mortgage loans is to protect banks from losing too much money.
Check your particular loan to see if it has a policy on prepayment penalties and if that is a requirement of the outlined stipulations. In the end, even if there is an extra charge for early payoff, it is usually less than what will be required if you pay off the loan following the original specified terms.
