Increasing Monthly Payments Could Help You Save

Increasing your monthly mortgage payment by a small or large amount can significantly reduce the amount of money you pay in interest and your repayment period.

What Effect Would Increasing Your Monthly Payment Have?

Increasing your monthly mortgage payment can have immediate and long-term effects. 

The most common motivation to increase your monthly payment is the reduction in the total amount of interest you will pay over the life of the loan. 

This is because more of your payment goes toward the principal balance rather than the interest, which reduces the principal faster and thereby decreases the interest accrued in future months.

For example, on a $300,000 mortgage with a 30-year term at a 4% interest rate, if you increase your monthly payment by just $200, you will pay off your loan balance in 162 fewer months and save $119,070 in interest payments over the repayment period.

This accelerated payoff period means that you will be free from the financial burden of a mortgage sooner. 

Benefits of Increasing Your Monthly Mortgage Payment

1. Interest Savings - One of the largest benefits of increasing your monthly mortgage payment is the substantial savings on interest. Mortgages are typically structured so that a larger portion of your payment is applied towards interest in the early years of the loan. By increasing your monthly payment, you can directly reduce the principal balance, which will lower the total amount of interest you pay over the life of the loan.
2. Shortened Loan Term - Increasing your monthly payment can shorten the term of your mortgage. For example, by paying an additional $200 per month on a 30-year mortgage, you could potentially reduce the term of your loan by several years. This means you could become mortgage-free faster and have more disposable income in the long run.
3. Increased Home Equity - By paying down your mortgage principal faster, you increase your home equity at a quicker rate. This can be beneficial if you decide to sell your home or if you need to borrow against your home’s equity for major expenses such as home improvements, education costs, or medical bills.
4. Better Refinancing Options - Higher equity in your home can also provide better opportunities for refinancing. With more equity, you might qualify for lower interest rates and better loan terms.
5. Financial Security and Peace of Mind - Paying off your mortgage early can provide a sense of security and reduce financial stress. The knowledge that you are progressing towards financial freedom and reducing your debt can be highly motivating.
6. Flexibility in Financial Planning - Once your mortgage is paid off, you have more flexibility in your financial planning. The funds that were previously allocated to your mortgage payment can be redirected towards other financial goals such as retirement savings, investments, or travel.