What is principal reduction? – What happens if I make 1 extra mortgage payment a year?

Reducing your mortgage loan’s principal amount is a great strategy for repaying the loan as quickly as possible. There is significantly more financial freedom once you repay a home loan, as some mortgage repayments can be very expensive!

However, not everyone has the funds to continuously make extra mortgage repayments. Since this is the case, even making one extra mortgage payment a year can reduce the principal amount. What happens when the principal amount is lowered on the loan? The principal amount of a loan is the amount left before interest has been added on. This is typically what a borrower principally borrows from a lender.

The principal amount is what determines the interest. Once an interest rate is specified, this is applied to the principal amount, and it is added to the minimum repayment. You can use a few strategies to save money to pay an extra repayment of your loan.

Some people like to use envelopes and will place spare change and extra cash. This helps borrowers not spend the money. Use these funds to make an additional payment at the end of the year. This can reduce the interest you pay and the length of the term.

Extra Mortgage Payments Conclusion

Regardless if you want to pay less in interest or pay your home as quickly as possible, paying an extra repayment each year can reduce both! Mortgage House experts, though, can assist you in understanding and finding the best interest rates and fortnightly and monthly payments.