Adding an extra mortgage payment each year can make a huge difference in your financial future. This simple strategy, often called a "13th payment," is one of the most effective ways to save a significant amount of money and build home equity faster.
By making one additional full mortgage payment annually, you're directly attacking your loan's principal. Since interest is calculated on the remaining principal balance, every extra dollar you pay and apply to your principal, reduces the amount of interest you'll owe over the life of the loan.
Think about it this way: your regular monthly payment is a mix of principal and interest. In the early years of your loan, most of what you pay goes toward interest. An extra payment can be applied entirely to the principal, drastically accelerating your payoff schedule.
How an Extra Payment Benefits You
Making a 13th payment each year offers two major benefits:
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Massive Interest Savings: This is the most significant advantage. By paying down your principal faster, you reduce the total amount of interest you’ll pay over the life of the loan. This could save you tens of thousands of dollars, depending on your loan amount and interest rate.
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Building Equity Faster: Equity is the portion of your home that you actually own. The more principal you pay down, the more equity you build. This is important because it increases your home's value as an asset and can be used for things like a home equity loan or line of credit in the future.
How Many Years Can You Save?
The amount of time you save on your loan depends on several factors, including your loan amount, interest rate, and how much extra you pay. However, a general rule of thumb for a standard 30-year mortgage is that making one extra payment per year can shave off 5 to 7 years from the life of your loan. This means you could be mortgage-free years sooner and save a significant amount in interest.
Simple Ways to Make an Extra Payment
You don't have to make one large lump sum payment at the end of the year. You can break it down into smaller, more manageable amounts:
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Pay bi-weekly: Divide your monthly payment by two and pay that amount every two weeks. This results in 26 half-payments a year, which equals 13 full monthly payments.
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Add a little extra each month: Simply divide your monthly payment by 12 and add that amount to each of your regular monthly payments. For example, if your payment is $1,200, add $100 extra each month. By the end of the year, you'll have made one extra payment.
By adopting this simple habit, you're not just paying your mortgage—you're strategically taking control of your homeownership journey, saving money, and building wealth.
I hope this tip helps you save dozens of thousands in interest. You can then use that money to buy another property, travel, or for your retirement. Contact me for more professional tips. Sergio Viaggio - Real Estate Broker Expert.