Q&A: Are There Benefits To Making Extra Mortgage Payments?

There are definite benefits to paying even just one extra mortgage payment a year! The basic principle is that the higher your rate and the longer your term – the more money you can save.

Note the following two examples:

• Paying one extra mortgage payment a year on a $300,000 loan with a 4.5% rate and a 30-year term would take 4.5 years from the life of your loan and save you close to $43,000 in interest
• Paying one extra mortgage payment a year on a $300,000 loan with a 3.5% rate and a 15-year term would take 1.5 years from the life of your loan and save you close to $10,000 in interest

There is the potential, however, that your loan carries a Pre-Payment Penalty, which means if you pay off your loan early – you could be hit with a penalty charge.

When purchasing or refinancing, either ask your lender direct if there are any Pre-Payment Penalties associated with your mortgage, or request a copy of your Truth-In-Lending, which will have a statement (normally seen at the bottom of page 1) confirming if the loan holds a Pre-Payment Penalty.