Which is better: Pay Extra on Our Mortgage Monthly or Annually?

“We want to pay our mortgage down faster, and we've seen different ways to do that. Our question is, should we pay a little more each month, or save it up and pay a lump sum at the end of the year?”

The goal of paying extra on your mortgage is to reduce your principal faster, so that you reduce the total interest you are paying. If you wait until the end of the year to make a lump payment, then you've allowed an entire year to pass without any extra reduction of the principle.

It's better to pay extra monthly so you are reducing the principle a bit each month, and so reducing the interest a little each month, too. Before you start making extra payments, you need to ask your lender if they have penalties for overpayment. Also find out how to indicate that your extra funds only go to the principal and ask if there is a limit to the amount you can overpay monthly or annually.

The Cat and Paul Humphries Real Estate Team is the #1 Keller Williams Real Estate Team in the Santa Clarita Valley and surrounding communities.  If you would like to receive our newsletter with more articles like this that feature real estate, things to do, where to go and what to eat in the Santa Clarita Valley, please subscribe to our newsletter at the top of the page.