Paying off your home and owning it free and clear doesn't have to be a marathon of gut-wrenching double or triple payments. We just went over the numbers on how much of a difference loose change or found money can make on your mortgage. Here’s another painless approach (one among many) I think you’ll find enlightening.

Round Up Kills More than Weeds

The next time you pay your mortgage, round the payment up to the next higher dollar. First, I’ll show you how much of a difference that can make, then I’ll show you exactly how to do it.

Example 1

In our first example, Javier and Luisa are paying down a $100,000 mortgage at 6%. Their monthly payment is $599.55. Luisa insists they try this technique by rounding their monthly payment up to $600. Javier is sure 45 cents a month isn’t going to make a difference, but because Luisa might tell him to pack his own darn lunch, he backs off.

By adding $0.45 a month to the principal on their loan, they realize a net savings of $290.03. The 45 cents times 360 payments (30 years of 12 monthly payments each) amounts to $162. That’s money they would have had to pay anyway, because it’s part of the $100,000 they owe. But by sending it in before it was due, they will avoid $290.03 in interest. 

Javier gives Luisa a big hug and kiss, tells her he loves her for her mind, and leads her back to the bedroom.

Example 2

Benjamin and Gloria are chopping their way through a $600,000 mortgage at an attractive 5.875% rate. Their prescribed payment is $3551.14 per month. Benjamin has a comfortable job and doesn’t like bills. He figures paying more sooner can only help, so he makes his monthly online mortgage payment an even $4000.00.

This is a big dose of “Roundup.” The extra $448.86 per month saves them $191, 654.73, and gets them out from under their mortgage seven and a third years sooner than they would have been had they strictly followed their lender’s 30-year fixed schedule.

How to Apply Roundup to the Weeds in Your Mortgage

To kill off unwanted and out-of-control compounding interest in your home loan, apply all extra or advance payments of any amount to principal only.

As silly as it might seem, for Javier and Luisa’s interest savings of $290, each month when she wrote their check for $600, Luisa carefully filled out the coupon like this: $599.55 for the regular mortgage payment and $.045 as an extra principal payment.

You see, the law says all extra principal payments have to be indicated as such in writing. Otherwise, the lender would have the legal right to hold the extra 45 cents until enough additional money comes in to add up to the next $599.55 payment. You see the problem: then there would be $.90 left over. Since the extra $.45 increments would never total a full $599.55 payment, they would all be saved and added in for the last payment on the house. Luisa and Javier’s last payment would be reduced by the $162 worth of 45-cent additions, but they would not save any interest whatsoever.

Since Benjamin paid his mortgage online, he used the “extra principal payment” line to indicate his $448.86 contribution was not just an advance payment. In fact, he found with a little digging that he could set up his account so $4000.00 would be automatically deducted from his checking account each month and divided according to his specifications between his regular payment and extra principal.

Here are the exact steps: In writing (or in separate fields for this purpose, if paying online), indicate the amount you are paying on your regular principal and interest payment. Then indicate how much additional you are paying to be applied to principal only. Follow up afterwards to make sure your payments were applied as you requested. If not, call the lender to see what you need to do to reduce your principal more quickly. If so, then rinse and repeat monthly!