Here's a simple trick to significantly reduce the length of your mortgage and save thousands of dollars in interest: Make extra payments which are applied toward your principal. People accomplish this goal in a few different ways. Paying 1 additional full payment one time per year is perhaps the simplest to keep track of. But many people won't be able to afford this huge additional payment, so dividing an extra payment into 12 additional monthly payments works too. Another very popular option is to pay a half payment every two weeks. The result is you make one extra monthly payment every year. Each option yields slightly different results, but each will significantly reduce the duration of your mortgage and lower the total interest paid over the duration of the loan.
It may not be possible for you to pay more every month or even every year. But you should remember that most mortgage contracts will allow additional payments at any time. Any time you come into unexpected cash, consider using this rule to make an additional one-time payment on your principal. If, for example, you receive a large gift or tax refund four years into your mortgage, you could pay this money toward your mortgage loan principal, which would result in huge savings and a shortened payback period. Unless the mortgage loan is very large, even a few thousand dollars applied early in the loan period can yield huge benefits over the duration of the loan.
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