How much extra should I pay on my mortgage?

ErikaB123

We are closing on our first house on 8-31! It's coming very fast. I want to be prepared and find out any tricks I can use to pay down our mortgage faster. I have heard people say before that if you pay extra on your mortgage, it goes straight towards the principal. Have any of you done this? If so, what amount would you suggest I should pay extra and how many years will it save me? Thanks!

atlcatlover

This will vary for everyone.  It depends on your budget, any other debt you may have, what your savings is like, etc.

We do pay extra each month, and yes it goes straight to principal.  We pay the equivalent of one extra monthly payment over the course of the year.  So if your payment is $1000 you pay 1/12 of that each month. But again, it's all about what you can afford.

If you have any credit card debt or car payments they might be at a higher interest rate so it might be more beneficial to get those paid off first.

Or you might want to make sure you are putting enough away for retirement first.

And you definitely need to have a very healthy emergency fund of at least 3-6 months of expenses too because things will break and they will be expensive to fix.

For us paying on the mortgage is a no brainer. We already max out our 401Ks, and we have no other debt.

You can find a great amortization calculator on bankrate.com where you can play around with the numbers to see how paying extra affects the term.

Good luck!

StacyLynn7

We just bought a home this year and our goal is also to pay the equivalent of one extra monthly payment throughout the course of the year.

MrsS728

We are going to pay our mortgage bi-weekly and save on the interest. It should only take 24ish years instead of 30 to pay off the mortgage.

G2SoccerTaz

Excel also has a great loan amortization calculator. We automatically add a little each month and this little bit extra we add each month will cut off 2 years of our loan. Some months we might add more depending on finances. Anything extra cuts out payments and lowers how much you pay in interest.

minionlover

We are doing a Mortgage Accelleration Program (MAP) with our bank.  They take 1/2 a mortgage payment every other week and then on the first they apply whatever is in the account to the mortgage.  In the end, we are paying one extra mortgage payment per year plus any interest on the MAP account.

In the end, it all depends on your budget.

SURFERxGIRL

Like others have said, it totally depends on your budget. There are tons of calculators out there that you can use that will help you figure out if you pay x amount extra how much faster your loan will be paid off, or you can type in the date you want to be paid and it will tell you how much you need to pay every month.

Our area was hit hard by the housing crisis so our mortgage ended up being much less than what we were paying for rent, and we decided that after utilities we'd just pay x amount until everything evened out to what our rent was (We were already used to that budget and decided to just continue living like that--it amounts to about $500 extra a month in mortgage payments). At this rate our loan will be paid off in about 11 years instead of 30 and we still have enough money leftover to put in for retirement, savings, vacations, etc. Once we start looking into starting a family in a few years we might cut back how much we're paying extra but that won't be for another few years at least.

HouseOfGreen

SURFERxGIRL said:

Like others have said, it totally depends on your budget. There are tons of calculators out there that you can use that will help you figure out if you pay x amount extra how much faster your loan will be paid off, or you can type in the date you want to be paid and it will tell you how much you need to pay every month.

Our area was hit hard by the housing crisis so our mortgage ended up being much less than what we were paying for rent, and we decided that after utilities we'd just pay x amount until everything evened out to what our rent was (We were already used to that budget and decided to just continue living like that--it amounts to about $500 extra a month in mortgage payments). At this rate our loan will be paid off in about 11 years instead of 30 and we still have enough money leftover to put in for retirement, savings, vacations, etc. Once we start looking into starting a family in a few years we might cut back how much we're paying extra but that won't be for another few years at least.

Oh my gosh! 11 years! You are my Idol! My husband and I were in 45,000 in debt. It took us five years to pay it all off and get our credit scores up. After that hard lesson learned we try hard not to have any debt! All we have is one car payment. I need to look into paying off our home quick. Hopefully this offer goes through so we can do this. 

moonprincessd

Yes and you can also pay off your house early! My parents just did that a year ago. They sold their stocks and had some over investments, used that to pay off the rest of their house, I think it only took them 10 years (might be 11 or 12, I don't remember how old I was when we moved into that house, lol)

Mom987

We get paid biweekly but they are opposite of each other. So every Friday we get paid. Every Friday we see what we have extra and put it towards principal. There are some weeks we don't have extra, and there was a time we also had 2 car payments. When we had those, we paid extra towards those.

SURFERxGIRL

HouseOfGreen said:

SURFERxGIRL said:

Like others have said, it totally depends on your budget. There are tons of calculators out there that you can use that will help you figure out if you pay x amount extra how much faster your loan will be paid off, or you can type in the date you want to be paid and it will tell you how much you need to pay every month.

Our area was hit hard by the housing crisis so our mortgage ended up being much less than what we were paying for rent, and we decided that after utilities we'd just pay x amount until everything evened out to what our rent was (We were already used to that budget and decided to just continue living like that--it amounts to about $500 extra a month in mortgage payments). At this rate our loan will be paid off in about 11 years instead of 30 and we still have enough money leftover to put in for retirement, savings, vacations, etc. Once we start looking into starting a family in a few years we might cut back how much we're paying extra but that won't be for another few years at least.

Oh my gosh! 11 years! You are my Idol! My husband and I were in 45,000 in debt. It took us five years to pay it all off and get our credit scores up. After that hard lesson learned we try hard not to have any debt! All we have is one car payment. I need to look into paying off our home quick. Hopefully this offer goes through so we can do this. 

Haha, thanks. To be honest we lucked out with everything. We were initially looking to move into a house because H's company was going through massive layoffs and we realized that on my salary alone we'd only be able to afford our apartment for a few months, but that with what we had in savings we could put a down payment on a house and be paying less than half what our rent was. So we went that route, the house appraised for much less than what we thought it would (almost $20,000 less) and H ended up keeping his job so we ended up having extra money at the end of the month. Even if we didn't have that extra cushion from his job, I'd still try to put as much extra as I could towards the principle on our loan.

Growing up my parents made some horrible financial choices that they're paying for now and I guess I watched them and decided I wanted to go in the exact opposite direction. That's a long-ish story, I won't bore you, lol.

Awesome that you guys were able to pay off that debt--I hope the house works out for you guys!

HouseOfGreen

My parents are the same way. They think of credit cards like cash. My dad loves his toys (t.v. xbox etc.), and my mom loves to be the Jones's that everyone is keeping up with, and to top it off they both love cars! I just hate that they can buy all this stuff, and where my husband and I work hard and go to school hard we don't get the things we want. Which is not much. We are very modest and just want a house. A small house. yet they get it all! I know that there interest rates must be high. I know for certain they have horrible credit. Any who! Enough with my rant lol!

Sisugal

Make sure your mortgage has no prepayment penalty and always mark your extra payment designation to be applied to principal.

ErikaB123

Great advice people! I'm just super nervous, this is our first house. We have 105k in the bank but 75k will be used in the down payment.I want to have a nice cushion in the bank but it looks like it will be pretty slim. Kinda freaked out. I guess I need to focus on positives like the fact that we don't have any other debt. Still nervous!

short+sassy

Congratulations on your new home!  Any extra money you can put towards the principal...especially in the early years...can take many, many years off your mortgage.

 

Ask your lender (or you can probably find a similar calculation online) to pretend you have 15-year mortgage instead of a 30-year one (I'm assuming you have the typical 30) and then have them tell you what the payments would be.  I guarantee, you will be SHOCKED how little extra it is in comparison to your 30-year mortgage payment...and then, if it fits in your budget, pay the 15-year payment amount with the extra going toward principal and your loan period will be cut in half.

I am very fortunate to live in a city with a lot of multi-family homes.  My house is one structure but two separate residencies so I live in one side and rent out the other side.  I'm not always perfect, but I have tried to be really disciplined about paying the mortgage out of "my money" and then putting most of the monthly rent I collect directly to the principal.  I estimate I should have my house paid off in my first six years .

BTW, as great as it is to pay the principal down, having a cushion that gives you some security for a rainy day is very smart!