Your mortgage payment is often the largest one to contend with each month, but it’s by far one of the most important bills that can’t be ignored when it comes to budget planning. While you likely planned ahead to know how much home you could realistically afford while also tamping down debt, improving credit scores and securing a low interest rate to minimize payments, there’s another option to consider: paying extra on the mortgage when possible. Why? We’re going to explain.

The Advantages of Overpaying on a Mortgage

If ditching mortgage payments faster is on your long-term homeownership agenda, overpayments each month can have vast benefits to help achieve that goal. Here are a few ways you can benefit by paying a little extra each month, if possible.

You’ll Pay Less Interest Overall

By directing extra funds towards mortgage payments, you’re applying more towards the principle portion of the loan, which in turn reduces interest. Homeowners planning to remain in place for years to come will find this approach to be a solid return on their financial investment.

Build Equity Faster

Any additional money that goes towards the principle loan amount will automatically build up equity in the home. Every payment that is not going towards interest accrues, which allows for equity savings that can be used for home improvements, towards refinancing or to increase your return should you opt to sell.

Shorten the Time Period of Home Debt

There’s no more satisfying feeling than knowing you own your home free and clear and can say goodbye to those pesky monthly payments. Paying more when you can will shave years off the loan period, depending on how much more you contribute to the principle balance.

If paying more right now won’t work well with your budget, there are a couple of other options to consider.

Consider Buy Down Mortgages

When financing a loan, you might consider a buy down mortgage. Buy down mortgages are a type of tradeoff that that requires buyers to pay more for points at closing, but over the agreed loan term, less interest is paid, which results in a lower payment. This allows for greater payments on your part, which lowers the overall interest you will pay–and that sounds appealing to any home buyer!

Contemplate Loan Refinancing

If your current loan is for 20 or 30 years, the overall interest you might ultimately pay could be substantial. While longer loans equate to lower monthly payments, going with a shorter term like 15 years could keep tens of thousands in your bank account. When paying extra on a long-term loan isn’t feasible, consider refinancing the loan to lower the interest rate and shorten the number of payments that are required overall.

Need Guidance Navigating the Loan Process or Advice on Your Current Mortgage?

At Mortgage Investors Group, our goal is to simplify the homebuying process. Our experienced team will guide your journey from preapproval of your loan to handing you the keys at the closing.