- 1). Each month you are required to pay a monthly payment toward your mortgage loan. In that payment you are paying interest, principle, and most likely taxes and insurance. The payment is calculated for say 30 years based on the amount you borrowed and the interest you will pay for 30 years. Between payments interest is accruing on the remaining balance of the original loan.
- 2). All you need to do to cut back on the amount of interest you pay on your mortgage, is to cut your monthly payment in half and make payments twice a month. As an example for simplicity your house payment is $1000.00 a month and it is due on the 1st of every month. On the 15th of the previous month, make a payment of $500.00 to your mortgage lender and the remaining $500.00 again by the 1st, the original due date. Your payment amount is still the same. Your payments are still made on time.
- 3). How much interest do you pay? Lets say you borrowed $100,000.00 for a mortgage loan. You are paying 5.50% interest over a 30 year period. It will cost you approximately an additional $129,574.83 in interest to pay off the loan. That calculates to $229,574.83 to pay off your original $100,000.00 mortgage. Now keep in mind this is interest and principle only, and interest rates may vary depending on the type of loan.
- 4). So how does this cut back on your interest? Interest is accrued on your principle interest. Each month that you pay off some of your principle it reduces the amount of interest you pay the next month. Now granted the decrease is a very slow change. By paying more money towards your loan more often, you are constantly reducing your balance not monthly but biweekly which in turn reduces your interest over time. Not only will this save you money, but you could pay your home off earlier by 7 to 10 years.
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