How to Minimize Mortgage Costs

For most homeowners, paying off their outstanding mortgage is a top priority. Paying any additional amounts to your principal early in the mortgage term can reduce the life of your mortgage and dramatically lower the amount of interest you will have to pay. However, regardless of how far you are into the term of your mortgage, any pre-payments you can make will save you a lot of money in interest. The reason for this is that the interest portion of your mortgage payment is determined by the principal amount outstanding. As the principal lessens, so does the amount of interest and more of your mortgage payment goes to the mortgage balance. Other methods that can be used to minimize your mortgage costs and pay off your mortgage more quickly include the following:

• Increase Mortgage Payment Frequency

  The more frequent payments are made the more years can be taken off your amortization period and can save you thousands of dollars in interest.

• Round up your Mortgage Payments

  Adding even a nominal amount, for example an extra five dollars to each mortgage payment, can a have surprising effect on how much interest you will save over the amortization period of your mortgage and is a relatively painless expense at the time of the payment.

• Do not reduce your Mortgage Payments if Interest Rates fall

  If you are able to continue to make the same mortgage payments when the interest rates fall, more of your payment will be put towards your principal balance.

• Raise your Mortgage Payments incrementally with increases to your After-Tax Income

  While the extra disposable income would be enticing to spend on other items, by proportioning it to your mortgage payments, the long term benefits will outweigh your short term sacrifice. Pre-payment policies may vary depending upon your financial institution and type of mortgage you possess. Before deciding on how you wish to reduce the life time of your mortgage, review your mortgage agreement to see what options are available to you.