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Print Out An Amortization Schedule
Everyone should print out an amortization schedule as soon as they get their mortgage payment to follow along with it. You'll be able to watch every mortgage payment you make and check it off as you pay it each month. That way you'll always see exactly what you owe the mortgage lender at all times.
Amortization Schedule
$150,000 @ 5% interest |
Monthly Payment |
Interest |
Principal |
Balance |
| 1. $805.23 |
$625.00 |
$180.23 |
$149,819.77 |
| 2. $805.23 |
$624.25 |
$180.98 |
$149,638.78 |
| 3. $805.23 |
$623.49 |
$181.74 |
$149,457.05 |
| 4. $805.23 |
$622.74 |
$182.49 |
$149,274.55 |
| 5. $805.23 |
$621.98 |
$183.26 |
$149,091.30 |
After each month you should check off that you paid it. If you want to add extra principal there's an easy way to do it without having to change everything. Let's assume Month 1 is paid and you're about to pay Month 2 and have an extra $200 to add to your mortgage. Month 2 will cost $805.23 for the standard payment and you should add Month 3 principal only of $181.74. So 805.23 + $181.74 = $986.97 as a total amount. That way you can simply check off that you paid Month 2 and Month 3. Plain and simple.
If you just added $200 to your mortgage payment it would still go to principal but it would be much harder to keep track of each month. This way you can also see that since you paid Month 3 principal that you saved Month 3 interest. That's why you save so much money by adding extra principal. You already saved $623.49.
It won't always be that easy though. As you get 5 years into your mortgage the principal starts going up quite a bit. You won't be paying $200 per month in principal, it will be more like $300. That means you'd have to pay $805 + 300 to cover 2 months and only save $500 in interest. So the beginning of the mortgage is the best time to start paying it down. | 
