Home In on Security
Send in extra payments.
Add one more per year to a 30-year fixed-rate mortgage, and you cut about five years off the payback period. On a $200,000 mortgage, you would also reduce your total interest payment from more than $250,000 to just $196,000, assuming a 6.4 percent interest rate. If you can send in even more, go for it.
Cut your goal into bite-size pieces.
Instead of telling yourself you can't afford an additional payment, divide that amount by 12 and send it in every month on top of the regular installment. For example, if your mortgage comes to $1,200 a month, send in an extra $100 ($1,200 divided by 12).
Stick to the principal.
Don't let the lender apply your supplemental dollars to the interest.
Check for a prepayment penalty.
You may not have noticed when you took out the mortgage whether the lender gets an extra fee if you pay off the loan ahead of schedule. Check out your loan documents or call to find out if there's a penalty, what it is, and when it expires. Obviously, you'll want to factor this into your strategy.
Forget the "lost" tax break.
Don't worry about losing your tax write-offs; most of them are in the first years of the mortgage anyway. Toward the end of the loan, there's very little tax advantage. You're really not giving up anything in the long run, but you sure are gaining a lot.