An annual bonus can be a nice surprise at the end of the year that you can use however you want. It could go toward savings, a special purchase, paying down your credit card debt, or paying off your mortgage early. When your fixed or adjustable mortgage is worked out, you are told how much to pay each month.
But a mortgage calculator that focuses on extra payments will show that it can be in your best interest to think about this and use your bonus as an extra annual payment.
And you thought you were done with a mortgage calculator when you signed the papers for your house.
Your mortgage lender will tell you how much you need to pay each month to stay current on your loan. It doesn't stop you from paying more! If you get a bonus every year, you should invest it by making an extra payment on your mortgage principal every year.
Find out how much your annual bonus changes your mortgage by using a mortgage calculator. Depending on how much your annual bonus is and how much of it you want to put toward your mortgage principal, you could save money on interest. This decrease happens because you are paying off the loan faster than you are paying off your mortgage. Less time you owe means you pay less interest.
This is what your bank calls the "miracle of compound interest" working against him. When you pay off the principal early, you pay less interest on the interest. Poor him, lucky you. The mortgage calculator shows you how to get it to work for you instead of against you.
You should also think about whether or not it would be better to invest the money in some other way. It might be better for you to save up more money and pay the whole amount at once, like every 5 years.
Using the current rate of interest for an investment account you could open with your annual bonus, figure out how much you would have in total after 5 years. Then, use the extra payment mortgage calculator to figure out how much it would change your loan.
You'll get interest on your investment account, so you'll have more money to put toward your loan. In the second part of this scenario, use the mortgage calculator to figure out how much your mortgage would be if you paid the bonus directly against the principal balance of your mortgage every year for 5 years.
Which of the two sums makes the most financial sense for you? If it seems too good to be true, use different mortgage calculators to make sure. Which one gives you a shorter mortgage term and a lower balance? This is the best way for your money to work for you.
A good way to invest your extra money in your home is to make an extra payment on the principal of your mortgage. But first, use a mortgage calculator to figure out if this is the best way to spend your money or if an investment account would be better.
