How to Pay Extra Toward the Principal of a Loan
Switch to bi-weekly payments., Go for a shorter term mortgage., Agree to make one extra payment each year.
Step-by-Step Guide
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Step 1: Switch to bi-weekly payments.
Talk to your lender about possibly switching to bi-weekly payments rather than making full payments every month.
Bi-weekly payments take advantage of the fact there are 12 months in the year but 52 weeks.
If you pay half the amount every two weeks, by the end of the year you'll have made 13 full payments rather than
12.Talk to your bank or lender about setting up a bi-weekly payment plan.
Some companies are willing to set up a plan of this type for free while others might charge a fee.Sometimes, outside companies offer to set up bi-weekly payments for you.
However, this is unnecessary.
You should not have to pay additional fees for something you can do yourself. -
Step 2: Go for a shorter term mortgage.
If you have a mortgage payment, you can save money by shortening your mortgage.
You can shorten a 20 year payment plan to a 15 year one.
While payments will be higher, you can work with your lender to find manageable payments and interest rates.
However, if you're worried about affordability you don't have to refinance your mortgage.
You can find a refinance calculator online and see what your rates would be with a shorter term plan.
Then, take initiative on your own to pay more each month.
If you're unable to make the higher mortgage payment one month, you won't be in any trouble with the bank., You can also talk to your lender about making one extra payment each year.
If you plan ahead around the month when the extra payment is due, this is manageable.
In some loan agreements, you may get a bonus or a sizable tax refund for making an extra payment. -
Step 3: Agree to make one extra payment each year.
Detailed Guide
Talk to your lender about possibly switching to bi-weekly payments rather than making full payments every month.
Bi-weekly payments take advantage of the fact there are 12 months in the year but 52 weeks.
If you pay half the amount every two weeks, by the end of the year you'll have made 13 full payments rather than
12.Talk to your bank or lender about setting up a bi-weekly payment plan.
Some companies are willing to set up a plan of this type for free while others might charge a fee.Sometimes, outside companies offer to set up bi-weekly payments for you.
However, this is unnecessary.
You should not have to pay additional fees for something you can do yourself.
If you have a mortgage payment, you can save money by shortening your mortgage.
You can shorten a 20 year payment plan to a 15 year one.
While payments will be higher, you can work with your lender to find manageable payments and interest rates.
However, if you're worried about affordability you don't have to refinance your mortgage.
You can find a refinance calculator online and see what your rates would be with a shorter term plan.
Then, take initiative on your own to pay more each month.
If you're unable to make the higher mortgage payment one month, you won't be in any trouble with the bank., You can also talk to your lender about making one extra payment each year.
If you plan ahead around the month when the extra payment is due, this is manageable.
In some loan agreements, you may get a bonus or a sizable tax refund for making an extra payment.
About the Author
Scott Thompson
Specializes in breaking down complex organization topics into simple steps.
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