One of the biggest mistakes homeowners can make is not taking advantage of the prepayment privileges associated with their mortgage. Most mortgage lenders will allow you the following privileges to pay down your mortgage quicker:
– Increase your mortgage payments by up to 20% each year
– Make lump sum payments up to 20% of the original mortgage balance each year
For example, on a $250,000 mortgage with a 25 year amortization, a payment increase of only 2% each year would pay off the mortgage 5 years sooner and save you over $15,000 in interest over the life of the mortgage. The 2% increase is minimal and will likely not affect your day to day spending, but the end result is well worth your while.