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How to pay off your mortgage faster and save on interest

So, you’ve purchased a home, and now you’re wondering how you can pay off your mortgage, fast. You’re not alone. Buying a house can be an intimidating step towards building equity and generational wealth. 

For most buyers, owning a home is a long-term commitment that comes with many responsibilities – the most important of which is a monthly mortgage payment. But there are numerous ways you can speed up your payments and save money on a mortgage, so that you can enjoy life in your new home, debt free. 

One of the best strategies is to make extra principal payments. This means you add an extra sum of money on top of your scheduled monthly payment. It’s a simple strategy that can save you thousands of dollars in interest over time.

In other words, an extra principal payment is extra money from your budget that you put towards your mortgage. These funds can come from bonuses at work, extra income or money that’s freed up when you pay down other debts. While it can be tempting to put this money toward other purchases or savings, by putting it toward your mortgage you’ll end up saving money. Paying your principal down faster will also help free up funds that could go towards other expenses, such as college funds, retirement funds, or home improvements.

Check out our mortgage calculator that factors in extra principal payments to help make a plan that will guide you through saving on interest over the life of your loan. 

So, how much money can you save? Let’s say you have a 30-year mortgage of $200,000 with an interest rate of 4.5%. If you add $300 to your monthly payments, you can save $67,646 in interest payments over the repayment period. According to our mortgage payment calculator, this strategy would allow you to pay off your balance eleven years sooner than originally scheduled. But even an extra $50 monthly on a 30-year $200,000 loan can save you as much as $17,645 in interest.

Even if you can’t spare much money, it’s worth adding extra principal payments on your mortgage when you are able – as you’ll save money in the long run.

For prospective homeowners who haven’t yet taken out a mortgage, we recommend including factors like taxes and insurance into your final budget. First Merchants offers a full range of mortgage calculators with taxes and insurance fields factored in, as well as other variables, including homeowners’ association dues.

If you have questions about paying off or securing a mortgage, give us a call at 1.800.205.3464 or visit one of our banking centers.

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