Writer: D'Lyn Ford
LAS CRUCES -- Home buyers who can afford to pay a little extra on the principal of their mortgage each month will save a lot over the years.
"If you've been in your home for only a short time, the first payments you make on your mortgage are mostly interest," she said. "You pay more interest early in the mortgage. As you repay the bank, the interest decreases."
People who don't like paying the bank all that interest can use other ways to pay down the amount of money borrowed (the principal) faster. Check with the lender to make sure there are no penalties for making "prepayments" or early payments, Wright advised. The Federal Housing Administration and the Veteran's Administration do not allow lenders to access penalties.
Most mortgage companies have a space on the payment form to itemize additional principal payments, she said. Make sure the lender knows that the extra money being sent each month is to be applied to the principal.
One popular way to pay off a mortgage early is to make an extra payment every year -- 13 monthly payments instead of 12.
"Add the next principal amount to your regular monthly payment or send whatever extra amount you can with each payment," she said. "This may be a uniform amount each month like $50, or the amount may vary depending on what you can afford at the end of the month. If you earn a bonus or overtime pay, use it to pay down the principal."
Have the lender figure out a payment schedule based on paying every two weeks, she suggested. Making 26 payments each year would be the same as making 13 monthly payments.
"Another way to pay off your mortgage is to add an additional 3 percent to each payment each year," Wright said. "If you stick to this plan, you can pay off a 30-year mortgage in a little more than 15 years."
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