Strategically pay more-than-minimum on your mortgage

When your mortgage payments become part of your monthly expenses for so long, it can start to seem as if they’re restricting your ability to spend money on other things you’d prefer.  But let’s refocus here–your mortgage isn’t just another bill, it’s an investment toward a strong financial future. The more you pay down the principal on your mortgage, the more ownership over your home and its value is in your hands.  While your monthly payments also include interest (that goes straight to the bank without the return of increasing your share of the property ownership), that’s just another incentive to pay off the balance sooner–doing so will mean you pay less in total to your lender.  So how can you do this? Try the following:

  • Shorten the term of your home loan.  Either start off or refinance to a loan that you can pay off in less time.  Why? Own more of your home faster, and simultaneously reduce the total amount of money you pay in interest to your lender.  While you’ll make larger payments than with the standard 30-year fixed home loan, you’ll be glad you did a few years down the road.
  • Every 3 months, make a bonus payment.  Different lenders hold different policies on accepting and applying extra payments (ideally you’d want it all applied to the principal), so ask these questions up front.  But if you can stash a few hundred dollars every month in savings, use 3 months’ worth of savings (plus interest you pull in) to pay down the principal on your loan. You’ll reduce the amount of interest owed over time, and pay off your debt faster–even without refinancing or switching to a shorter loan term.
  • Round monthly payments up to the hundreds digit. And pay that amount. For example, $1128/month becomes $1200/month.  After 12 months, you could be anywhere from a few hundred to around $1000 closer to paying off your mortgage.  It’s a great strategy to see a little go a long way.
  • Apply any bonuses, tax returns, and other cash bumps to your mortgage.  Again, figure out your mortgage lender’s policies up front to make that when you pay more than minimum, most (if not all) of it will be applied to the principal on the loan.  Otherwise, if there’s nothing you critically need to use your bonuses and tax refunds to cover (such as a costly and unexpected home repair), it’s much better spent acquiring a larger stake in your home than on impulse purchases or consumables and vacations.

Rana Khanjani, MBA
San Fernando Valley Iranian-American Real Estate Agent

Providing Services in English and Farsi

Phone: 818.723.9071
Address: 22020 Clarendon St. 200, Woodland Hills, CA 91367