“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 principle faster, so that you reduce the 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, how to indicate any extra funds only go to principle, and if there is a limit to the amount you can overpay monthly or annually.
Need more real estate answers? Send me your questions. ~ Valerie, (718) 399-3320