What are the advantages of making one extra principal only mortgage payment per year?

Question

Lets say you have a 30yr fixed rate mortgage of 500k and you make one extra principal only payment per year..how many years can you take off the time it takes to pay off the note?

Answer 1

Try this page:

http://www.vertex42.com/ExcelTemplates/extra-payments.html

There is a free downloadable calculator that shows what you can do.

Advantages are: paying off the loan faster and saving on interest charges.

It appears that by making one extra payment per year you pay off the loan about six years sooner. (I took a monthly payment and divided it by 12... the calculator only asks for extra monthly payment).

Answer 2

Your question confuses me a bit. Mortgages are "front-end-loaded" meaning the interest at the beginning of the 30 year term, when compared to the principal amount at the beginning. The ratio of interest to principal is high... at the end of the term there is little interest and mostly principal. If you make a principal only payment at the beginning... not much payment. If you make a total extra payment and the company agrees to apply it to the principal totally, that is a very good thing in the beginning. Another way to accomplish this is to pay every 2 weeks instaed of monthly... you make 1 or 2 extra payments per year and it reduces the time by many years.