2 Extra Mortgage Payments a Year Can Save You Thousands (2024)

With the average 30-year mortgage rate hovering near 7%, the 3-4% mortgage rates of the last few years look like they’ll be gone for the foreseeable future. Assuming you were lucky enough to lock in those rates, what other options are available to save money over the life of your mortgage?

One option is to make additional principal payments. Just making two extra mortgage payments a year can save you tens of thousands of dollars and cut years off your loan.

When we discuss making two extra mortgage payments a year, we don’t mean that you have to make extra payments exactly twice a year. You could make smaller payments on a monthly basis, you could pay an extra half of your normal mortgage payment quarterly, or you could make a lump sum payment once a year.

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You may be able to simply increase your normal monthly payment, or your lender or mortgage servicer may have an alternate process in place for additional principal payments, so it’s important to check with them to make sure that your additional payments are being applied to your loan principal and not just your next monthly mortgage payment.

By making two extra mortgage payments a year, you’re prepaying principal that would otherwise accrue interest over the life of the loan. Plus, those payments are accelerating repayment because they’re payments you would have made anyway.

2 Extra Mortgage Payments a Year: By the Numbers

You can find prepayment calculators on websites like Bankrate or MortgageCalculator.org (MortgageCalculator’s advanced calculator provides additional prepayment options) and see exactly how two extra mortgage payments a year will affect your specific loan. But if you have a relatively recent loan, you’re likely looking at tens of thousands of dollars in savings and cutting as much as eight years off the life of your loan.

Obviously, not everyone can afford to make two extra mortgage payments a year. You’re basically increasing your housing costs by 16%. That being said, if you can check off the following items, it might be a smart decision.

Make 2 Extra Mortgage Payments a Year if…

You’ll be in your current home for most or all of the life of the loan. The value of extra payments is realized through a reduction in the life of the loan and interest savings over 20+ years; you won’t realize nearly the same benefits if you’ll only be in the home 5-10 years.

You’re already maximizing other savings. If you don’t already have emergency savings, if you’re not taking advantage of your employer’s 401k matching, or if you’re not setting aside money to invest for the future, you shouldn’t prioritize two extra mortgage payments. Prioritize saving for emergencies and growing your net worth before you start allocating extra money towards your mortgage.

Your income is stable and predictable. If you have reliable income, it’s much easier to earmark a portion of it for two additional mortgage payments. That’s not necessarily the case if your income is highly variable. However, you can always tap into a large or unexpected bonus or sales commission to boost your savings. Just don’t tie up all your liquidity in an illiquid asset like a home.

The decision to make two extra mortgage payments a year will ultimately be highly individual. Some homeowners may need to prioritize setting aside money for other uses, like retirement, higher education, investing in rental properties, or emergency savings. But if you’re thinking about prepaying your mortgage, you should take a moment and explore the mortgage calculators above. It’s a good first step to see what effect those extra payments will have on your finances.

Is reducing the life of your mortgage or saving money on interest a bigger priority when you think about prepaying your mortgage?

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*This post is periodically updated to reflect market conditions.

Nancy Zambell has spent 30 years educating and helping individual investors navigate the minefields of the financial industry. She has created and/or written numerous investment publications, including UnDiscovered Stocks, UnTapped Opportunities, and Nancy Zambell’s Buried Treasures under $10. Nancy has worked with MoneyShow.com for many years as an editor and interviewer for their on-site video studios.

2 Extra Mortgage Payments a Year Can Save You Thousands (2024)

FAQs

2 Extra Mortgage Payments a Year Can Save You Thousands? ›

Consequently, this can significantly shorten the term of your mortgage. For instance, consider a 30-year fixed mortgage of $200,000 at a 4% interest rate. By making just two extra payments per year, you could shorten the term by several years and save thousands in interest.

What happens if you make 2 extra mortgage payments a year? ›

By making two extra mortgage payments a year, you're prepaying principal that would otherwise accrue interest over the life of the loan. Plus, those payments are accelerating repayment because they're payments you would have made anyway.

How much money can you save by making an extra mortgage payment a year? ›

Over the course of the year, you will have paid the additional month. Doing so can shave four to eight years off the life of your loan, as well as tens of thousands of dollars in interest.

How does making 2 mortgage payments help? ›

The bottom line. A biweekly mortgage payment schedule can save you time and money. You'll pay your loan off faster and save on principal – perhaps hundreds of thousands of dollars. All you have to do is find room in your budget for the equivalent of one extra monthly payment each year.

How do you pay off a 30 year mortgage in 15 years? ›

The choice comes down to careful study and a decision based on your financial position and ability to repay what will be higher monthly payments.
  1. Pay Extra Each Month. ...
  2. Pay Bi-Weekly. ...
  3. Make an Extra Mortgage Payment Every Year. ...
  4. Refinance with a Shorter-Term Mortgage. ...
  5. Recast Your Mortgage. ...
  6. Loan Modification. ...
  7. Pay Off Other Debts.

How many years off mortgage with 2 extra payments? ›

This is equivalent to 12 slightly-higher monthly payments of $1,252.85 — but this small difference is enough to pay off your full debt in just 22 years and cost you only $129,712.85 in interest. In other words: two extra mortgage payments per year will save you eight years and $56,798.72 in interest.

What happens if I pay 3 extra mortgage payments a year? ›

Making additional principal payments will shorten the length of your mortgage term and allow you to build equity faster. Because your balance is being paid down faster, you'll have fewer total payments to make, in-turn leading to more savings.

How to pay off a 250k mortgage in 5 years? ›

Increasing your monthly payments, making bi-weekly payments, and making extra principal payments can help accelerate mortgage payoff. Cutting expenses, increasing income, and using windfalls to make lump sum payments can help pay off the mortgage faster.

What happens if I pay $1000 extra a month on my mortgage? ›

Throwing in an extra $500 or $1,000 every month won't necessarily help you pay off your mortgage more quickly. Unless you specify that the additional money you're paying is meant to be applied to your principal balance, the lender may use it to pay down interest for the next scheduled payment.

How can I pay off my 30-year mortgage in 10 years? ›

Here are some ways you can pay off your mortgage faster:
  1. Refinance your mortgage. ...
  2. Make extra mortgage payments. ...
  3. Make one extra mortgage payment each year. ...
  4. Round up your mortgage payments. ...
  5. Try the dollar-a-month plan. ...
  6. Use unexpected income. ...
  7. Benefits of paying mortgage off early.

What is the 2 2 2 rule for mortgage? ›

One Spouse's Income Doesn't Meet Requirements

Many lenders use the 2/2/2 rule to evaluate loan eligibility, which typically requires: 2 years of W-2s. 2 years of tax returns. 2 months of bank statements.

How fast can you pay off a 30 year mortgage with biweekly payments? ›

Pro 1: Pay Off Your Mortgage Faster

But if you make biweekly mortgage payments, you will be making what equates to 13 monthly payments each year. Assuming a 6.5% interest rate and biweekly payments of $252, you would pay off your mortgage in a little over 24 years, or about six years early.

What happens if I pay an extra $2000 a month on my mortgage? ›

The additional amount will reduce the principal on your mortgage, as well as the total amount of interest you will pay, and the number of payments.

What happens if I pay an extra $500 a month on my mortgage? ›

Making extra payments of $500/month could save you $60,798 in interest over the life of the loan. You could own your house 13 years sooner than under your current payment.

How to pay off a 300k mortgage in 5 years? ›

To pay off your mortgage early, you'll need to increase your monthly payments and apply additional funds to your principal balance. For some people, this might involve finding ways to boost their income, or re-budgeting and cutting back on unnecessary expenses.

What does Dave Ramsey say about paying off your mortgage? ›

As Ramsey pointed out, paying more than the minimum amount due each month can cut down on the total amount of interest paid. This is because more of your hard-earned money is going toward the principal balance rather than the interest. Paying early and often also can lower the overall loan term.

How do you pay off a 30 year mortgage in 10 years? ›

Here are some ways you can pay off your mortgage faster:
  1. Refinance your mortgage. ...
  2. Make extra mortgage payments. ...
  3. Make one extra mortgage payment each year. ...
  4. Round up your mortgage payments. ...
  5. Try the dollar-a-month plan. ...
  6. Use unexpected income.

How to pay off a 30 year mortgage in 5 years? ›

There are some easy steps to follow to make your mortgage disappear in five years or so.
  1. Setting a Target Date. ...
  2. Making a Higher Down Payment. ...
  3. Choosing a Shorter Home Loan Term. ...
  4. Making Larger or More Frequent Payments. ...
  5. Spending Less on Other Things. ...
  6. Increasing Income.

What happens if you make 4 extra mortgage payment a year? ›

Put simply, you will save significant amounts in interest. Most mortgage contracts allow borrowers to make extra payments, and they allow all of the extra money to be applied to the principal amount of your loan. That means you are paying down the real amount of the loan – the money you borrowed – faster.

What happens if I pay $500 extra a month on my mortgage? ›

Making extra payments of $500/month could save you $60,798 in interest over the life of the loan. You could own your house 13 years sooner than under your current payment.

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