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%. Then, 5 years later, you can make an extra $10,000 lump-sum payment. Doing so pays off the mortgage 2 years and 4 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.
Bankrate's mortgage calculator lets you see how much time and money you save by making a lump-sum payment. Click "Show Amortization Schedule."
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