How to Calculate Extra Payments to Mortgages

How to Calculate Extra Payments to Mortgages

Step 1

Check your monthly mortgage statement for the amounts that go to principal and interest. If you have a 30-year mortgage with a fixed interest rate, you will knock seven years off the life of the loan for each extra payment made per year.

Step 2

Divide your monthly mortgage principal and interest payment by 12. Add this amount to your mortgage payment each month, earmarked for principal reduction. You have just budgeted one extra payment a year.

Step 3

Multiply your extra monthly payment by two to get the amount you need to pay monthly to cut your 30-year mortgage almost in half.

Step 4

Set up a monthly debit with your mortgage company to apply extra payments to principal. This will reduce paperwork and make you pay the extra each month. Budget as if you had the higher mortgage payment to ensure that you have enough money for the mortgage each month.

Step 5

Check with your lender about the cost of a biweekly mortgage. If the option is free, it's an easy way to get an extra payment in per year without stretching your budget. Instead of making one payment a month, you'd make one every two weeks. If you make 26 payments in a year, you'll pay the same amount as you would if you made 13 monthly payments.

Step 6

Use an online mortgage calculator, such as the one at YourMoneyPage.com, to see how much interest you will save over the life of the loan by making additional principal payments.