21 Mar The Importance of Overpaying Your Mortgage
A home mortgage payment may be one of the largest expenses that you are responsible for each month, and you may be focused on making the minimum monthly payment to your mortgage holder. However, in reality, it may be better for you to focus on paying more than the minimum amount each month. Regardless of whether you can only afford to pay a little extra each month or you can pay several hundred pounds extra, you will enjoy a number of fabulous benefits by making this extra effort.
Build Equity Faster
The equity in your home accumulates through a combination of an increase in your property value and a decrease in your principal loan amount. When you make an extra payment on your mortgage, that amount is not applied to interest charges. Instead, it is applied directly to principal. This means that any extra amount that you pay is immediately extra equity in your home that was not there before.
Pay Your Mortgage Off Sooner
More than that, you will also be able to pay off your mortgage sooner. Your final principal payoff date is based on you making equal monthly installments and on interest charges being calculated based on that debt being reduced in regular, equal installment payments. When you pay off more debt each month, this means that the interest charges for each of the following months will be reduced and more principal will be paid off in those months. This accelerates the final loan pay off debt by drastically reducing the amount of interest that you will be assessed over the life of the loan and by making your payments more effective at debt reduction.
Use a Loan Calculator
If you want to know if it is worthwhile to make a smaller or larger extra payment each month, you can easily use a loan calculator to see the effects for yourself. Some of these calculators allow you to see the projected pay off debt with different monthly payments, and this is a convenient way to see how effectively your money will be used when you make an extra payment.
While you may be focused on paying off a credit card or auto loan, it can be truly beneficial to your financial situation in the long run when you also find some extra money in your budget to pay toward your mortgage. Use a loan calculator today to see for yourself how much of a difference this can make in your financial plans for the mid and long-range future.