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umrebel2009
Ole Miss Fan
Member since Feb 2010
6831 posts

Question about mortgage payments

We just got a 25 yr loan with our interest rates in the 2-3% this past year.


I was reading online that if you make one extra payment to the principal of your loan each year that you can cut off about 5 years off your loan, especially if you do it early on when most of your payments are going to interest.

Is that true? Seems like the math would be right but idk. I don't have a ton of extra money but I could swing an extra payment each year.

Basically applying 1/12 of a monthly payment to principal each month seems like the easiest way to do this.

Feel like it's something I wouldn't have really thought of if I hadn't seen someone else talking about it, Any other mortgage payment tips that I should know about?


MrJimBeam
New Orleans Saints Fan
Member since Apr 2009
9438 posts

re: Question about mortgage payments
May as well add the 1/12 extra each month. Interest is front loaded and each month the mortgage is lower, the interest is lower. Doing it at the end of the year loses the 11/12 extra payments you put in the previous 11 months. I added extra payments until PMI was gone which was maybe a year. Now since I have a low rate like you, I use that money towards other investments because your mortgage is protected against inflation the next 20-30 years. If you have a date in mind you want to pay it off for various reasons, that’s fine and I get it. For me, I’ll manage my money with a higher return than 2-3 percent I have on my mortgage.


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70
lynxcat
Rutgers Fan
Member since Jan 2008
23372 posts

re: Question about mortgage payments
Minimal reason to pay off 2-3% mortgage ahead of time.


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131
jacquespene8
LSU Fan
Nashville, TN
Member since Sep 2007
3996 posts

re: Question about mortgage payments
At a low interest rate like that, I wouldn’t focus on making extra payments to it. Unless you’re completely debt free and have retirement accounts already fully funded for the year.

I’d probably pay off other higher interest debts first, and then work on saving extra.


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70
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UpstairsComputer
LSU Fan
Prairieville
Member since Jan 2017
1266 posts

re: Question about mortgage payments
Yes is the answer. An extra payment like that each year should cut 5-6 years off.

There are a bunch of amortization calculators online you can use to play with these numbers.


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footballdude
LSU Fan
BR
Member since Sep 2010
1056 posts

re: Question about mortgage payments
At that rate there is NO reason to pay it off early.
Invest the money for retirement instead.


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22
Turf Taint
LSU Fan
New Orleans
Member since Jun 2021
5506 posts

re: Question about mortgage payments
Another perspective...

Instead of making an extra payment towards your mortgage, what if you took the 13th payment and invested in an index mutual fund such as VASGX (Vanguard) of the total stock market across the same 25-year term

The investment thinking...likely will return > your 2-3% over that period (ie, positive spread, return over cost). Might you be leaving more value on the table by merely lowering mortgage interest with that 13th payment?


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40
GrizzlyAlloy
Liberty Fan
Member since Aug 2020
1097 posts

re: Question about mortgage payments
This is usually done by switching to biweekly payments (26 half payments/year)


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