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Once you have signed on the dotted line at your mortgage closing, you have made a long-term commitment, usually 30 years. Today, the commitment can even be longer with the 40-year mortgage becoming increasingly popular.

When you look at how much money over and above the principal you have paid out by the end of your mortgage, it is almost enough to bring tears to your eyes. The total money you pay out on your mortgage over the course of 30 years is usually more than twice as much as the original loan.

For example, with a mortgage of $200,000 at 7% for 30 years, your total amount paid out by the end of the mortgage is $479,000. With this figure, it is normal for you to want to save some of the extra $270,000 above the principle you are paying. This article will discuss how you can save a good chunk of this money by paying off your mortgage early.

Divide The Principal By The Months Left To Pay

Without the use of a special payoff mortgage early type of calculator, you can get a good idea what results you would achieve by paying extra principle with your monthly payments. You can see what those payments will do to reduce the overall cost of your mortgage by using some simple math. You can start by dividing the owed principle on your mortgage by the number of months left to pay off the mortgage.

Let’s use the above mortgage as our example. The mortgage loan principle is $200,000, with a 7 % interest rate and the term is 30 years. If it were a new loan then you would divide $200,000 by 360. 360 are the number of monthly payments that will be paid over the term of 30 years. The answer of $555.56 is the average principle of each monthly mortgage payment.

So you might be thinking that if you were to pay an extra $555.56 each month, you could pay off your mortgage in half the number of years. That makes logical sense but there is a catch, and it is a catch in your favor.

Extra Payments Compound With Interest

Just as any typical interest-bearing loan or investment is affected by compound interest, so is an extra monthly principle payment on a mortgage. Because of compound interest, instead of paying off your 30-year mortgage in 15 years (half the time) by adding $555.56 to each monthly payment, it will be paid off sooner. In the example above, it will actually be paid off in 13 years and 10 months!

Getting More Bang For Your Buck

Most families find it difficult or impossible to come up with an additional $500 to $600 every month. Particularly after closing on a new home, most family’s budgets are tapped out. Still, you could pay off a mortgage much sooner by adding a little extra money to each monthly payment. For example, if you only add one-quarter of this $555.56 payment, your payment would be an extra $138.88 every month.

The additional $138.88 paid each month would allow your mortgage to be paid in full in 22 years and 8 months. So, paying $555.56 monthly will shave your mortgage term by 16 years, and paying $138.88 will shave over seven years, or almost half this amount of time. So, you’re actually getting more bang for your buck by paying the smaller amount!

Additional Ways To Accelerate Your Mortgage Payoff

There are various other ways that you can achieve an early mortgage payoff. Some of these ways are quite ingenious but difficult to learn. The methods involve learning about how to use additional types of loans you can pay before they are due. Simply put, even though they can be complicated to learn, they can be quite effective.

As you can hopefully see by now, simply paying a little more money each month is effective at paying your mortgage off ahead of time and it can save you many thousands of dollars.

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