How would changing my mortgage payment amount affect my mortgage?
Most mortgages these days include some form of prepayment privileges that enable you to pay your mortgage back faster without “breaking” your mortgage and incurring any kind of prepayment penalty. One of those prepayment privileges is the ability to increase your monthly mortgage payment amount by a certain percentage, which usually ranges between 10% and 20%.
Let’s compare how increasing your monthly payment by 10% just once affects your interest on a $200,000 mortgage with a 5-year fixed rate term, a rate of 5.39%, and an amortization of 25 years.
Your monthly payment increases by $120.80, changing your payment from $1,208.01 a month to $1,328.81 a month. Making this minor change means you could pay off your mortgage in 21 years as opposed to 25 years, and you’d save a grand total of $28,698.98 in interest.*
Isn’t that money that you’d much rather have in your pocket?
The only drawback to this specific prepayment privilege, is that you cannot reduce your mortgage payment back down to its original amount. So, once it’s been raised, that’s your payment for the remainder of your mortgage term.