Tip #4: Pay an Extra $50 or $100 Per Payment

Using Tip #3, you make one extra payment per year. Using this method you make an extra payment towards the principle with every regular payment. Depending on whether you choose to make your payments, monthly, bi-weekly or weekly you will pay a little extra on your principle with every payment.

Many people use this method when on a restricted budget. It is easier to save $50 to $100 each month than one lump sum of $700 or more. So how much money and time can we save using this method?

Example
Based on a $100,000 mortgage at 6.00% interest for a 5-year term amortized over 25-years:
• Your monthly payment would be $639.81
• You would pay $28,225.07 in interest over the 5 years
• You would pay $10,163.50 in principle over the same 5 years
• Principle Balance left owing after 5 years $89,836.47

What You Will Save by Adding $50 Per Month
If you paid an extra $50 per month, each month for 5 years:
• You would save $388.34 in interest
• You would pay the principle down by $3,388.34
• If you continued this process every year you would save 18 months worth of payments; 1 ½ year’s worth of mortgage payments. At $639.81 per mortgage payment that means a savings of $11,516.58

This method makes it easier for many people to budget and save. We all survive on a budget and any of these Tips can help, especially when they result in saving the kind of money we have demonstrated in the first 4 Tips.