How to Save Money by Paying More Each Month

Saving money is difficult. Especially when the American economy is built upon the engine of non-stop consumption. With gas prices having doubled since Bush took office and transportation costs driving the price of everything else higher eventually, every little bit of money you can save comes in handy. The old saying a penny saved is a penny earned is misleading; a penny saved today can translate into a nickel or dime saved over time. One of the best ways to save money over the long term is by paying down the principle on your mortgage. Every little chunk you can carve out of your mortgage principle cuts down on the inflated price you will actually pay for your house. Just because you signed a mortgage for $100,000 house doesn’t mean you are actually paying $100,000 for a house. In fact, by the time you finish paying off your mortgage, you’ll have paid closer to $300,000 for that $100,000 house.

Unless you begin paying extra on the principle each month. Most of the money in that check you send to your mortgage company each month goes to paying off just the interest. At least, at first. It can take years before you start making even a small dent in the principle. But each time you lessen that principle you lessen the interest. By paying a little extra each month on the principle you could potentially cut ten years or more off your thirty year mortgage, as well as significantly cut down on that huge difference between the amount of the mortgage and what you actually pay for the house.

There are several paths you can take to start cutting down on your mortgage and begin saving money. You will spend more money in the short term, of course, but in the long term it’s a money-saving proposition. The first step is a do-it-yourself approach. Simply take your yearly mortgage payment and divide it by twelve. By paying that extra twelfth once a month and directing it to go to the principle, you essentially are making an extra month’s payment each year. Obviously, if you can afford to pay more than a twelfth each month that’s even better. In fact, if you try to find a way to save $100 each month by giving up some of those little things you don’t really need you can cut down on your principle by over $1000 a year.

If you just don’t have the discipline necessary to do it yourself, then request that your mortgage company convert your payment schedule from once a month to twice a month. This method speeds up your payments, but also your savings. The downside is that if you can’t make the payment you could potentially find yourself in serious trouble.

Finally, making extra payment on your mortgage principle can accomplished through a third party that automatically debits your checking account twice a month. This third party must be FDIC-insured, however.

Regardless of which method you choose to make an extra payment on your mortgage, the most important thing to keep in mind is that you must direct all extra funds to be considered prepayment on the principle.