A mortgage is one of the most expensive and long-term commitments you will make in your life. So how can you both save money and take years off your loan? It’s actually pretty simple. If you pay just a little extra on your mortgage each month or year, you will owe significantly less over the life of the loan.
Although most borrowers know their home is a valuable asset, they often don’t consider how much interest adds to their overall cost. Your mortgage is amortized, meaning you pay regular installments on principal and interest over the specified period of time. Every time you pay your mortgage, interest costs decrease and the principal increases. If you pay nothing extra on the mortgage, the total amount you owe over the life of the loan will not change. However, pay a little extra and you can take years off your loan and save thousands of dollars in interest.
Let’s look at this closer. If you get a 30-year loan for $250,000 and it accrues 4% interest per year, you will end up paying $179,674 in interest over the life of the loan. This is a big number, but one you can reduce by budgeting some extra money for your mortgage.
Using the example I’ve just described, the monthly mortgage payment is $1193.54 per month. If you can make one extra mortgage payment per year, you can save over $28,000 in interest over the life of the loan! Make it a Christmas present and pay a little at a time or make one lump payment at the end of each year. Paying just a little extra on your mortgage is the gift that keeps giving.
The more knowledge you have about the mortgage process, available loan options and your individual qualifications, the more satisfying your homebuying experience will be. Connect with a local RCB Bank lender to get answers to your lending questions. Give us a call or visit our online Mortgage Center.
Opinions expressed above are the personal opinions of the author and meant for generic illustration purposes only. The monthly payment calculation expressed above is not for any specific loan type and is meant for generic illustration purposes only. For specific questions regarding your personal lending needs, please call RCB Bank at 855-BANK-RCB. With approved credit. Some restrictions apply. Equal Housing Lender, Member FDIC. RCB Bank NMLS #798151.
