Throw 'found' money at the mortgage
Get a bonus? A tax refund? An unexpected windfall? However it ends up in your hands, you can funnel some or all of your newfound money toward your mortgage.
Let's say you got a 30-year, fixed-rate mortgage for $200,000 at 4.5 percent. Then, five years later, you can make an extra $10,000 lump-sum payment. Doing so pays off the mortgage two years and four months earlier, and saves more than $19,000 interest.
Minimum payments only
|Monthly principal and interest, years 1-5||$1,013.37|
|Years and months to pay off loan||30 years|
Making a lump-sum payment
|$10,000 lump-sum payment at 61st month||$1,013.37|
|Years and months to pay off loan||27 years, 8 months|
The upside: You're paying extra only when you're flush. And those additional payments toward the principal will cut the total interest on your loan.
The downside: It's irregular, so it's hard to predict the mortgage payoff date. If you throw too much at the mortgage, you won't have money for other needs.
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Bankrate's mortgage calculator lets you see how much time and money you save by making a lump-sum payment. Click "Show Amortization Schedule."