By paying an extra amount of principal each month, you can pay off a 30-year mortgage in half the time. Say you have a $100,000, 6 percent mortgage for 30 years. Initially, you’d owe $6,000 in interest per year: 6 percent of $100,000. That’s $500 per month.
However, your payments might be $600 per month. Thus, you start out paying around $100 per month in principal. Each month your principal payment goes up to $101, $102, etc., and your interest payment drops accordingly.
Therefore, instead of paying $600 the first month, you’d pay $701–you’d add the next month’s principal payment. Get an amortization schedule to see exactly how much to pay. Each succeeding month, add the following month’s principal amount.
If you keep up these payments, you’ll pay off a 30-year mortgage in 15 years. In this example, that would save nearly $60,000 in interest.
