If you buy a home, chances are good you're going to get a mortgage to do it. Getting a mortgage loan means you're committing to a monthly payment that could follow you around for decades. When faced with this big obligation, you may want to try to repay your debt sooner rather than later.
It can feel daunting to figure out how to pay off such a big sum of money ahead of schedule. But what if you just pay an extra $100 a month toward your loan? Would that make a difference? Here's what you need to know.
How much of an impact can $100 extra make on your mortgage payment?
Making an extra $100 monthly payment on your mortgage loan can have a surprisingly big impact on the time that it takes you to become debt-free.
Let's say you took out a 30-year mortgage at 6.5% for $300,000. If you made an extra $100 monthly mortgage payment from the start of the time that you borrowed, you would end up repaying your debt a whopping four years faster than if you did not make an extra payment. In the process, you would save yourself $60,995 in interest.
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An extra $100 per month can make a bigger impact than you might think with your loan because when you pay this additional sum every month, the entire amount goes toward bringing down your principal balance. Usually, a good portion of each regular monthly payment goes toward just reducing the interest that you owe. But any extra you send in can actually drop your balance. That lower balance in turn means you pay less interest the next month since you don't owe the bank quite as much money.
Where can you find an extra $100 to pay extra to your mortgage?
If you want to take advantage of the opportunity to pay off your home loan years sooner, there are several potential ways you can find an extra $100 monthly.
One option would be to pick up a side gig, like driving for Uber, selling products online, or launching a blog or podcast. Side hustlers earn an average of $483 monthly, so you could work just a few hours in the month to earn an extra $100 to repay your mortgage.
Another option would be to cut spending elsewhere. If you dine out four times a month and pay $50 per meal out, give up two of those meals and redirect the extra $100 to your mortgage. Or if you're paying for an expensive gym membership you don't use much, see if you can switch to a cheaper one or give it up altogether.
The key is to go through your budget, find a sustainable cut you can make and stick to, and redirect that cash toward your mortgage. When you become debt-free years earlier, you'll be glad you made the effort.
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FAQs
If you made an extra $100 monthly mortgage payment from the start of the time that you borrowed, you would end up repaying your debt a whopping four years faster than if you did not make an extra payment. In the process, you would save yourself $60,995 in interest.
What happens if I pay an extra $100 on my mortgage every month? ›
If you pay $100 extra each month towards principal, you can cut your loan term by more than 4.5 years and reduce the interest paid by more than $26,500. If you pay $200 extra a month towards principal, you can cut your loan term by more than 8 years and reduce the interest paid by more than $44,000.
How much faster will I pay off my mortgage if I pay an extra $500 a month? ›
By paying extra $500.00 per month starting now, the loan will be paid off in 17 years and 3 months. It is 7 years and 9 months earlier. This results in savings of $122,306 in interest.
What happens if I pay an extra $1,000 a month on my mortgage? ›
When you pay extra on your principal balance, you reduce the amount of your loan and save money on interest. Keep in mind that you may pay for other costs in your monthly payment, such as homeowners' insurance, property taxes, and private mortgage insurance (PMI).
How much extra do I need to pay on my mortgage to pay it off quicker? ›
Making an extra mortgage payment each year could reduce the term of your loan significantly. The most budget-friendly way to do this is to pay 1/12 extra each month. For example, by paying $975 each month on a $900 mortgage payment, you'll have paid the equivalent of an extra payment by the end of the year.
How to pay off a 30-year mortgage in 10 years? ›
Options to pay off your mortgage faster include:
Pay extra each month. Bi-weekly payments instead of monthly payments. Making one additional monthly payment each year. Refinance with a shorter-term mortgage.
How to pay off a 15 year mortgage in 5 years? ›
There are some easy steps to follow to make your mortgage disappear in five years or so.
- Setting a Target Date. ...
- Making a Higher Down Payment. ...
- Choosing a Shorter Home Loan Term. ...
- Making Larger or More Frequent Payments. ...
- Spending Less on Other Things. ...
- Increasing Income.
When you pay extra on a mortgage, you're paying above and beyond the regular monthly installment. The money you send is meant to apply directly to the loan principal, not the interest. This allows you to pay down your loan sooner and save money on interest.
What happens if I pay an extra $500 a month on my mortgage principal? ›
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.
What happens if I pay an extra $300 a month on my mortgage principal? ›
As you can see, the principal balance of the mortgage decreases by more than the extra $300 paid each month. For example, if you pay an extra $300 each month for 24 months at the start of a 30-year mortgage, the extra amount by which the principal balance is reduced is greater than $7,200 (or $300 × 24).
Roughly 51% of homebuyers face monthly mortgage payments of $2,000 or more, up from 18% just two years ago. Not only that, but nearly a quarter of homebuyers have payments above $3,000 — up from 5% in 2021.
What happens if I pay an extra $200 a month on my 30-year mortgage? ›
Amortization extra payment example: Paying an extra $200 a month on a $464,000 fixed-rate loan with a 30-year term at an interest rate of 6.500% and a down payment of 25% could save you $115,843 in interest over the full term of the loan and you could pay off your loan in 301 months vs. 360 months.
How many years does a 2 extra mortgage payment take off? ›
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%.
What happens if I pay 3 extra mortgage payments a year? ›
Payments made on a mortgage in addition to your regular monthly payment will count toward the loan principal. Extra payments can be beneficial because they apply directly to your loan principal, helping you pay off your loan faster and with fewer interest fees.
What happens if I pay an extra $700 a month on my mortgage? ›
Over the course of a loan amortization you will spend hundreds, thousands, and maybe even hundreds or thousands in interest. By making a small additional monthly payment toward principal, you can greatly accelerate the term of the loan and, thereby, realize tremendous savings in interest payments.
What is the best day to pay extra on mortgage? ›
Is There a Best Time Within the Month to Make an Extra Payment to Principal? Yes, the best time within the month to make an extra payment is the last day on which the lender will credit you for the current month, rather than deferring credit until the following month.
What are the pros and cons of adding $100 a month to your fixed-rate mortgage payment? ›
Extra payments mean you will pay off the loan sooner. By making these extra payments you will ultimately live mortgage free sooner. Cons: the main con associated with adding $100.00 a month to your fixed mortgage payment is the opportunity cost of using that $100.00 in a different way.
Is it worth paying extra off your mortgage each month? ›
If you have a fixed-rate mortgage deal well below current market rates, you may consider overpaying your mortgage while you have this benefit. Factor in when your current mortgage deal will end – if it's in the near future, greater overpayments may be worthwhile.
What happens if I overpay my mortgage every month? ›
Once you've made an overpayment, you can't get a refund – and remember that you'll need to make your monthly payments as usual. Every overpayment you make means you pay less interest overall on the money you borrowed from us.
How many years will I take off my mortgage by paying extra? ›
No matter how much extra you pay each month, that amount can help shorten the life of your loan. Even making one extra mortgage payment each year on a 30-year mortgage could shorten the life of your loan by four to five years.
