After You Buy a House: Does Making Extra Mortgage Payments Pay Off?

You've closed the deal to buy a house. And you've probably written one of the biggest checks you will ever write in your life at closing. But it might be a good time to think about the way you will make your future mortgage payments. Developing a strategy before you buy a house can save you a considerable amount of money in the long term.

Making extra payments immediately after you buy a house shortens the length of your mortgage, and reduces your total interest. This is how it works: With every mortgage payment you make, part pays off interest and the balance pays off the principal. The amount of each portion is calculated by a process of amortization, which changes the equation each month as you make payments. The principal portion of each payment is deducted from the amount of outstanding principal, and the loan is recalculated from the time you buy a house until you pay off the mortgage.

If you choose a mortgage with a variable rate when you buy a house, your monthly payment amount may get larger or smaller as the loan's interest rate changes, based on the market. But if you have a fixed-rate mortgage, your monthly payment always stays the same throughout the life of the loan. But as you make payments, the principal portion gets larger and the interest portion gets smaller. This means that you can save considerable money on the total interest you pay over the life of the loan my making extra payments, especially right after you buy a house. It will also help you shave years off your mortgage. As an example, doubling your monthly payment every month from the time you buy a house will cut the เช่าบ้าน จตุจักร length of your mortgage in half.

The best time to make extra payments is right after you buy a house. That's because a larger portion of your payment goes toward interest than principal. You can also make an extra payment anytime you receive unexpected money, a tax refund, bonus or commission payment.

Another strategy is to make bi-weekly payments. Making a payment every two weeks gives you 13 monthly payments over a year rather than 12. Your first payment each month must be your full scheduled payment, regardless of any extra payments you have made. The second one can be any amount you choose.

Making extra payments are very smart over the long run. But you also need to consider short-term cash flow, especially if making an extra payment one month causes you to be short for your next month's payment.