Making regular extra payments toward the principal can yield significant returns. Borrowers pay extra in a few different ways. Paying one extra full payment one time a year may be the easiest to track. Of course, some people will not be able to pull off such a large extra payment, so dividing an extra payment into twelve extra monthly payments works as well. Another option is to pay half of your payment every two weeks. The result is you will make one extra monthly payment in a year. Each option yields different results, but they will all significantly reduce the duration of your mortgage and lower your total interest paid.
It may not be possible for you to pay down your principal every month or even every year. But remember that most mortgages allow additional principal payments at any time. You can take advantage of this provision to pay extra on your principal when you get some extra money. If, for example, you receive a surprise windfall three years into your mortgage, you could apply a portion of this windfall toward your loan principal, resulting in enormous savings and a shorter payback period. For most loans, even a small amount, paid early enough in the loan period, could offer huge savings in interest and in the duration of the loan.
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