{"id":73669,"date":"2018-06-01T05:00:27","date_gmt":"2018-06-01T11:00:27","guid":{"rendered":"https:\/\/www.biggerpockets.com\/renewsblog\/?p=73669"},"modified":"2024-02-19T08:06:43","modified_gmt":"2024-02-19T15:06:43","slug":"2015-07-01-extra-mortgage-payments-worth-it","status":"publish","type":"post","link":"https:\/\/www.biggerpockets.com\/blog\/2015-07-01-extra-mortgage-payments-worth-it","title":{"rendered":"Are Extra Mortgage Payments Worth It? A Look at the Numbers"},"content":{"rendered":"<p>How much time and money can you really save paying a little extra on the mortgage? Well, it depends on how much you spend and when you spend it.<\/p>\n<p>When most people think of loan payments and amortization schedules, they view them as linear. An additional dollar towards the mortgage now is the same as a dollar later. Or the more you pay towards <a href=\"http:\/\/www.investorwords.com\/3839\/principal.html\" target=\"_blank\" rel=\"noopener\">principal<\/a>\u00a0every month, the more benefit you receive. Neither of these are true.<\/p>\n<h2>How Additional Monthly Payments Affect Your Principal<\/h2>\n<p>Let\u2019s look at an example to see how it actually works.<\/p>\n<p class=\"p1\"><span class=\"s1\">Assumptions:<\/span><\/p>\n<ul>\n<li class=\"p1\"><span class=\"s1\">30 year mortgage<\/span><\/li>\n<li class=\"p1\"><span class=\"s1\">$300,000 loan<\/span><\/li>\n<li class=\"p1\"><span class=\"s1\">Interest rate 5%<\/span><\/li>\n<\/ul>\n<table cellspacing=\"0\" cellpadding=\"0\">\n<tbody>\n<tr>\n<td style=\"text-align: center;\" valign=\"top\"><span style=\"color: #000000; font-family: Helvetica; font-size: small;\" data-darkreader-inline-color=\"\">Additional Monthly Payment<\/span><\/td>\n<td style=\"text-align: center;\" valign=\"top\"><span style=\"color: #000000; font-family: Helvetica; font-size: small;\" data-darkreader-inline-color=\"\">Time saved<\/span><\/td>\n<td style=\"text-align: center;\" valign=\"top\"><span style=\"color: #000000; font-family: Helvetica; font-size: small;\" data-darkreader-inline-color=\"\">Interest Saved<\/span><\/td>\n<\/tr>\n<tr>\n<td valign=\"top\">\n<p style=\"text-align: center;\" align=\"right\"><span style=\"color: #000000; font-family: Helvetica; font-size: small;\" data-darkreader-inline-color=\"\">$30<\/span><\/p>\n<\/td>\n<td style=\"text-align: center;\" valign=\"top\"><span style=\"color: #000000; font-family: Helvetica; font-size: small;\" data-darkreader-inline-color=\"\">1 year 2 months<\/span><\/td>\n<td valign=\"top\">\n<p style=\"text-align: center;\" align=\"right\"><span style=\"color: #000000; font-family: Helvetica; font-size: small;\" data-darkreader-inline-color=\"\">$13,458<\/span><\/p>\n<\/td>\n<\/tr>\n<tr>\n<td valign=\"top\">\n<p style=\"text-align: center;\" align=\"right\"><span style=\"color: #000000; font-family: Helvetica; font-size: small;\" data-darkreader-inline-color=\"\">$60<\/span><\/p>\n<\/td>\n<td style=\"text-align: center;\" valign=\"top\"><span style=\"color: #000000; font-family: Helvetica; font-size: small;\" data-darkreader-inline-color=\"\">2 years 4 months<\/span><\/td>\n<td valign=\"top\">\n<p style=\"text-align: center;\" align=\"right\"><span style=\"color: #000000; font-family: Helvetica; font-size: small;\" data-darkreader-inline-color=\"\">$25,560<\/span><\/p>\n<\/td>\n<\/tr>\n<tr>\n<td valign=\"top\">\n<p style=\"text-align: center;\" align=\"right\"><span style=\"color: #000000; font-family: Helvetica; font-size: small;\" data-darkreader-inline-color=\"\">$150<\/span><\/p>\n<\/td>\n<td style=\"text-align: center;\" valign=\"top\"><span style=\"color: #000000; font-family: Helvetica; font-size: small;\" data-darkreader-inline-color=\"\">5 years 2 months<\/span><\/td>\n<td valign=\"top\">\n<p style=\"text-align: center;\" align=\"right\"><span style=\"color: #000000; font-family: Helvetica; font-size: small;\" data-darkreader-inline-color=\"\">$55,605<\/span><\/p>\n<\/td>\n<\/tr>\n<tr>\n<td valign=\"top\">\n<p style=\"text-align: center;\" align=\"right\"><span style=\"color: #000000; font-family: Helvetica; font-size: small;\" data-darkreader-inline-color=\"\">$300<\/span><\/p>\n<\/td>\n<td style=\"text-align: center;\" valign=\"top\"><span style=\"color: #000000; font-family: Helvetica; font-size: small;\" data-darkreader-inline-color=\"\">8 years 8 months<\/span><\/td>\n<td valign=\"top\">\n<p style=\"text-align: center;\" align=\"right\"><span style=\"color: #000000; font-family: Helvetica; font-size: small;\" data-darkreader-inline-color=\"\">$91,742<\/span><\/p>\n<\/td>\n<\/tr>\n<tr>\n<td valign=\"top\">\n<p style=\"text-align: center;\" align=\"right\"><span style=\"color: #000000; font-family: Helvetica; font-size: small;\" data-darkreader-inline-color=\"\">$500<\/span><\/p>\n<\/td>\n<td style=\"text-align: center;\" valign=\"top\"><span style=\"color: #000000; font-family: Helvetica; font-size: small;\" data-darkreader-inline-color=\"\">12 years<\/span><\/td>\n<td valign=\"top\">\n<p style=\"text-align: center;\" align=\"right\"><span style=\"color: #000000; font-family: Helvetica; font-size: small;\" data-darkreader-inline-color=\"\">$124,385<\/span><\/p>\n<\/td>\n<\/tr>\n<tr>\n<td valign=\"top\">\n<p style=\"text-align: center;\" align=\"right\"><span style=\"color: #000000; font-family: Helvetica; font-size: small;\" data-darkreader-inline-color=\"\">$1,000<\/span><\/p>\n<\/td>\n<td style=\"text-align: center;\" valign=\"top\"><span style=\"color: #000000; font-family: Helvetica; font-size: small;\" data-darkreader-inline-color=\"\">16 years 11 months<\/span><\/td>\n<td valign=\"top\">\n<p style=\"text-align: center;\" align=\"right\"><span style=\"color: #000000; font-family: Helvetica; font-size: small;\" data-darkreader-inline-color=\"\">$170,620<\/span><\/p>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<p class=\"p1\"><em><span class=\"s1\">Data via: <a href=\"http:\/\/www.bankrate.com\/calculators\/home-equity\/additional-mortgage-payment-calculator.aspx\" target=\"_blank\" rel=\"noopener\">www.bankrate.com<\/a><\/span><\/em><\/p>\n<p class=\"p1\"><span class=\"s1\">The first thing you\u2019ll notice is that paying a little more each month saves you money over the long term. With just $30 in additional principal payments a month, which most of us can afford and wouldn\u2019t notice, you can save over a year of payments and $13,458 in interest. If you upped it to $300 a month, you save $91,742 over the life of the loan. That\u2019s equivalent to a few years&#8217; wage for most people.\u00a0<\/span><\/p>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"alignnone size-full wp-image-90388\" src=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2017\/07\/real-net-worth.jpg\" alt=\"real-net-worth\" width=\"702\" height=\"336\" title=\"\" srcset=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2017\/07\/real-net-worth.jpg 702w, https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2017\/07\/real-net-worth-300x144.jpg 300w\" sizes=\"auto, (max-width: 702px) 100vw, 702px\" \/><\/p>\n<p><em><strong>Related:<\/strong> <a href=\"\/renewsblog\/2015\/06\/21\/compound-interest\/\" target=\"_blank\">Compound Interest: Einstein Loved It \u2014 And You Should, Too. Here\u2019s Why.<\/a><\/em><\/p>\n<p class=\"p1\"><span class=\"s1\">Now, the most important thing to notice about this chart is that for every additional dollar put towards principal, you get less of a return than the previous dollar. It\u2019s called diminishing returns. That\u2019s not what most people would expect because we\u2019re used to getting more when we pay more.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">Looking at the $30 and $60 monthly\u00a0payments, you can see that $60 a month does not give you twice the return of $30 a month. Actually, the first $30 will save you $13,458 in interest, while the second $30 will only give you $12,102. To make matters worse, if you did $500 a month, you would save $124,385, but only $46,235 more if the payment was doubled to $1,000 a month.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">The same pattern holds true for the time you save on the loan. The more you pay each month, the less benefit each additional dollar has on time saved.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">As Albert Einstein once said, \u201cCompound interest is the eighth wonder of the world. He who understands it, earns it. He who doesn&#8217;t, pays it.\u201d\u00a0<\/span><\/p>\n<h2 class=\"p1\">The Effects of When You Pay &amp; How Much You Pay<\/h2>\n<p class=\"p1\"><span class=\"s1\">We\u2019re not done yet.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">Let\u2019s look at when you pay and how much of an impact that has on long term savings and benefit.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">Below is a chart showing the impact of paying an additional $100 a month over different 5 year intervals.<\/span><\/p>\n<table cellspacing=\"0\" cellpadding=\"0\">\n<tbody>\n<tr>\n<td style=\"text-align: center;\" valign=\"top\"><span style=\"color: #000000; font-family: Helvetica; font-size: small;\" data-darkreader-inline-color=\"\">$100 a Month Extra Payment<\/span><\/td>\n<td style=\"text-align: center;\" valign=\"top\"><span style=\"color: #000000; font-family: Helvetica; font-size: small;\" data-darkreader-inline-color=\"\">Time Saved<\/span><\/td>\n<td style=\"text-align: center;\" valign=\"top\"><span style=\"color: #000000; font-family: Helvetica; font-size: small;\" data-darkreader-inline-color=\"\">Total Interest Saved<\/span><\/td>\n<\/tr>\n<tr>\n<td style=\"text-align: center;\" valign=\"top\"><span style=\"color: #000000; font-family: Helvetica; font-size: small;\" data-darkreader-inline-color=\"\">Years 1-5<\/span><\/td>\n<td style=\"text-align: center;\" valign=\"top\"><span style=\"color: #000000; font-family: Helvetica; font-size: small;\" data-darkreader-inline-color=\"\">1 year 2 months<\/span><\/td>\n<td valign=\"top\">\n<p style=\"text-align: center;\" align=\"right\"><span style=\"color: #000000; font-family: Helvetica; font-size: small;\" data-darkreader-inline-color=\"\">$17,025<\/span><\/p>\n<\/td>\n<\/tr>\n<tr>\n<td style=\"text-align: center;\" valign=\"top\"><span style=\"color: #000000; font-family: Helvetica; font-size: small;\" data-darkreader-inline-color=\"\">Years 5-10<\/span><\/td>\n<td style=\"text-align: center;\" valign=\"top\"><span style=\"color: #000000; font-family: Helvetica; font-size: small;\" data-darkreader-inline-color=\"\">11 months<\/span><\/td>\n<td valign=\"top\">\n<p style=\"text-align: center;\" align=\"right\"><span style=\"color: #000000; font-family: Helvetica; font-size: small;\" data-darkreader-inline-color=\"\">$12,290<\/span><\/p>\n<\/td>\n<\/tr>\n<tr>\n<td style=\"text-align: center;\" valign=\"top\"><span style=\"color: #000000; font-family: Helvetica; font-size: small;\" data-darkreader-inline-color=\"\">Years 10-15<\/span><\/td>\n<td style=\"text-align: center;\" valign=\"top\"><span style=\"color: #000000; font-family: Helvetica; font-size: small;\" data-darkreader-inline-color=\"\">8 months<\/span><\/td>\n<td valign=\"top\">\n<p style=\"text-align: center;\" align=\"right\"><span style=\"color: #000000; font-family: Helvetica; font-size: small;\" data-darkreader-inline-color=\"\">$8,304<\/span><\/p>\n<\/td>\n<\/tr>\n<tr>\n<td style=\"text-align: center;\" valign=\"top\"><span style=\"color: #000000; font-family: Helvetica; font-size: small;\" data-darkreader-inline-color=\"\">Years 15-20<\/span><\/td>\n<td style=\"text-align: center;\" valign=\"top\"><span style=\"color: #000000; font-family: Helvetica; font-size: small;\" data-darkreader-inline-color=\"\">7 months<\/span><\/td>\n<td valign=\"top\">\n<p style=\"text-align: center;\" align=\"right\"><span style=\"color: #000000; font-family: Helvetica; font-size: small;\" data-darkreader-inline-color=\"\">$5,170<\/span><\/p>\n<\/td>\n<\/tr>\n<tr>\n<td style=\"text-align: center;\" valign=\"top\"><span style=\"color: #000000; font-family: Helvetica; font-size: small;\" data-darkreader-inline-color=\"\">Years 20-25<\/span><\/td>\n<td style=\"text-align: center;\" valign=\"top\"><span style=\"color: #000000; font-family: Helvetica; font-size: small;\" data-darkreader-inline-color=\"\">5 months<\/span><\/td>\n<td style=\"text-align: center;\" valign=\"top\"><span style=\"color: #000000; font-family: Arial; font-size: small;\" data-darkreader-inline-color=\"\">$2,708<\/span><\/td>\n<\/tr>\n<tr>\n<td style=\"text-align: center;\" valign=\"top\"><span style=\"color: #000000; font-family: Helvetica; font-size: small;\" data-darkreader-inline-color=\"\">Years 25-30<\/span><\/td>\n<td style=\"text-align: center;\" valign=\"top\"><span style=\"color: #000000; font-family: Helvetica; font-size: small;\" data-darkreader-inline-color=\"\">4 months<\/span><\/td>\n<td style=\"text-align: center;\" valign=\"top\"><span style=\"color: #000000; font-family: Arial; font-size: small;\" data-darkreader-inline-color=\"\">$785<\/span><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<p class=\"p4\"><em><span class=\"s1\">Data via:\u00a0<a href=\"http:\/\/www.mtgprofessor.com\/mpcalculators\/ExtraPaymentsCalculator\/ExtraPayments1.asp\" target=\"_blank\" rel=\"noopener\">mtgprofessor.com<\/a><\/span><\/em><\/p>\n<p class=\"p1\"><span class=\"s1\">Each of the payment plans above is\u00a0exactly the same. However, the outcome is not. For example, if you pay $100 more a month for the first five years of the loan, you will save 1 year 2 months of payments and $17,025 in interest. Not bad. If you did the same payment plan between years 25-30, you would only save 4 months and $785.\u00a0<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">Let\u2019s go a step further (not in the chart) and <a href=\"http:\/\/www.mtgprofessor.com\/mpcalculators\/ExtraPaymentsCalculator\/ExtraPayments1.asp\" target=\"_blank\" rel=\"noopener\">calculate the extra payments<\/a> starting in year 10 and going until the loan is paid off (18 years and 1 month of payments). This payment plan would yield a savings of $15,401. Keep in mind that the same payment for the first 5 years saved you $17,025, or $1,625 more than the same $100 a month for the last 18 years. That&#8217;s a huge difference.\u00a0<\/span><\/p>\n<p><em><strong>Related:<\/strong> <a href=\"\/renewsblog\/2015\/04\/28\/ancillary-income-covers-63mortgage\/\" target=\"_blank\">I\u2019m Using Ancillary Income to Cover 63% of My Mortgage: Here\u2019s How<\/a><\/em><\/p>\n<p class=\"p1\"><span class=\"s1\">\u201cTime has a wonderful way to show us what really matters.\u201d<span class=\"Apple-converted-space\">\u00a0\u2014<\/span>Margaret Peters<\/span><\/p>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"alignnone size-full wp-image-90254\" src=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2017\/07\/master-lease-option.jpg\" alt=\"master-lease-option\" width=\"702\" height=\"336\" title=\"\" srcset=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2017\/07\/master-lease-option.jpg 702w, https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2017\/07\/master-lease-option-300x144.jpg 300w\" sizes=\"auto, (max-width: 702px) 100vw, 702px\" \/><\/p>\n<h2 class=\"p4\"><span class=\"s1\">The Moral of the Story<\/span><\/h2>\n<p class=\"p1\"><span class=\"s1\">We tend to think that paying a little bit more won\u2019t make that much of a difference because it usually doesn\u2019t. In the case of paying off a loan, a little matters the most. And the sooner you do it, the better off you\u2019ll be.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">Today is a good day to start.<\/span><\/p>\n<p><em>We&#8217;re republishing this article to help out our newer readers.<\/em><\/p>\n<p><a href=\"https:\/\/www.biggerpockets.com\/real-estate-investment-calculator?utm_source=renewsblog\" target=\"_blank\"><img loading=\"lazy\" decoding=\"async\" class=\"alignnone size-full wp-image-91220\" src=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2017\/08\/blog_ads-02.jpg\" alt=\"\" width=\"700\" height=\"85\" title=\"\" srcset=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2017\/08\/blog_ads-02.jpg 700w, https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2017\/08\/blog_ads-02-300x36.jpg 300w\" sizes=\"auto, (max-width: 700px) 100vw, 700px\" \/><\/a><\/p>\n<p class=\"p1\"><em>Do you make extra payments on your mortgage every month? Why or why not?<\/em><\/p>\n<p class=\"p1\"><strong>Be sure to leave a comment!<\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Should you make extra payments on your mortgage, and if so, how much more should you pay and starting when? Look at the numbers and get insight here!<\/p>\n","protected":false},"author":20661,"featured_media":90728,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[7402],"tags":[],"class_list":["post-73669","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-traditional-loans"],"acf":[],"comment_count":0,"_links":{"self":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/73669","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/users\/20661"}],"replies":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/comments?post=73669"}],"version-history":[{"count":0,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/73669\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media\/90728"}],"wp:attachment":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media?parent=73669"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/categories?post=73669"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/tags?post=73669"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}