1 Simple Mortgage Habit That Can Save You Thousands

It's amazing how much money you can save in the long run by just paying a little extra now!

May 4, 2014 at 12:29PM

If you have a 30-year mortgage on your home like most people do, it may seem like forever until you own your home free and clear. This doesn't have to be the case though, and by paying just a little more each month, the time until your mortgage is paid off can drop dramatically. In addition to the shorter payoff time, you'll save yourself a ton of interest in the process, so maybe it's worth spending a little more now to make your financial future much brighter.

A little extra can go a long way
Let's consider an example of a new 30-year mortgage with a $200,000 balance. At an interest rate of 4.5%, your monthly principal and interest (P & I) payment would be $1,013. However, if you were smart and bought a home you can afford comfortably, there should be a little extra in your budget.

If you could afford even $50 extra per month, it would knock almost three years off the loan. $100 extra per month would shorten the mortgage to just 25 years. Higher payments would knock even more time off the loan.

Click through this graphic that shows what your remaining balance would be if you made just the minimum payment, and compare it to the various extra payment amounts. Makes quite a difference, doesn't it?

Check out the savings!
By paying off your mortgage early, you not only reduce the amount of time you need to send in those checks, but you also save yourself a boatload in interest you would pay if you took the full 30 years.

By paying just the required amount, over the life of the loan you will have paid almost $165,000 in interest alone. It would certainly be nice to get out of paying some of that, right? Check out how much you can cut down on the amount by just paying a little more!

Can you afford an extra $100 per month if it saves you almost $32,000? All of a sudden it doesn't seem like such a burden!

So, how much can you afford?
If you can afford a little extra per month, go for it! If you don't want to commit to a certain amount, an annual or a one-time additional payment can go a long way toward paying off your loan earlier as well. For instance, if you take $1,000 of your tax refund each year and use it to pay down your principal, it'll knock off more than four years and $26,000 in interest.

Your payments don't need to be completely consistent, and little extra payments when you can afford it will go a long way. Bankrate.com has a very handy amortization calculator that lets you play around with various extra payment options. Enter in your mortgage balance and how much extra you could comfortably afford if you wanted to. How much time and interest will it save you?

Owning your house sooner means more financial freedom, and by paying it down earlier, not only will your house really be "yours" sooner, but you'll have a bunch of money left for yourself that didn't go toward making your bank richer!

The best thing to do with the money you save
The smartest investors know that dividend stocks simply crush their non-dividend paying counterparts over the long term. That's beyond dispute. They also know that a well-constructed dividend portfolio creates wealth steadily, while still allowing you to sleep like a baby. Knowing how valuable such a portfolio might be, our top analysts put together a report on a group of high-yielding stocks that should be in any income investor's portfolio. To see our free report on these stocks, just click here now.

 

Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.

 


Compare Brokers