Making extra principal payments on your mortgage can have a number of benefits – these extra payments can reduce the number of years you are in debt, save you thousands upon thousands of dollars in interest over the life of the loan, and allow you to build equity in your home much more quickly, should you have a need for quick access to cash. When I discuss mortgages, especially refinances, with most of my clients, I present several different options, and one of them is always showing them what continuing to pay their current mortgage amount would do to them, time wise, if we refinance into a new mortgage with a lower interest rate, or based upon a lower principal balance.

For instance, I had a borrower last month who refinanced his home in Livonia. This refinance lowered his interest rate by roughly 2%, but it added 3 years back onto his mortgage. However, when we looked at what would happen if he continued to pay his then current monthly payment for the life of the new loan, which obviously had a lower monthly payment, he would be debt free in just over 21 years. This startling time savings made sense for my client. And it also provided him with the flexibility to pay less on his mortgage in the event he had a cash flow issue one month.

Another thing to consider when making extra mortgage payments is what you are getting – and that is a guaranteed rate of return on your money. Some clients of mine put hundreds of dollars a month into an investment, and hope for great returns. But if the market goes down or if the wrong investments are chosen, that money could never grow, or could even lose value. By paying your principal down with extra mortgage payments, you are guaranteeing a rate of return equal to the interest rate on your mortgage. And I can promise you, you are not finding any guaranteed investments with interest rates that high (and if you do, please let me know, because I would love to see them).

If you have any questions about how making extra mortgage payments could help you, whether combined with a refinance or on their own, please contact me so I can go over the numbers with you. If you have anything to add about the benefits of making extra mortgage payments, please leave a comment.