Is Rounding Up Your Mortgage Payment A Good Alternative?

Out of many options to pay down the mortgage quickly the most relatively painless is the simple rounding up of one’s mortgage payment.

So if you owe $1,550 each month, paying $1,600 instead could make a sizable difference in your mortgage over the years, thereby reducing the loan term and saving you lots of money in interest.

The biggest factor is your actual monthly mortgage payment, which will determine how much extra you pay each month. 

Assuming you round up your payments to the nearest whole number. It can be quite different depending on the original payment amount.

If the mortgage payment is $1,599 a month, rounding it up to $1,600 will do virtually nothing to save you money on your mortgage. 

While if your monthly home loan payment is $1,501, bumping it up to $1,600 will lead to considerable savings.

Of course, it is not an easy task to increase your payment by nearly $100 a month, especially if you have other expenses to worry about or high-interest debt that needs to be paid off as well.

Let us assume your Loan amount is $200,000 for a 30-year fixed and mortgage rate is 4%, and your monthly mortgage payment is $954.83 and you round off the payment of $ 1000.ie. extra payment (monthly) of $45.17. 

A month toward principal, make sure the rounded-up amount does indeed go toward the principal. 

So $45 is small yet by making that $1,000 payment as opposed to $954.83, you’d save a big amount of  $13,606.49 in interest over the life of the loan and shave nearly 2.5 years off the term!

Another example with larger loan amount and higher interest rate –

Suppose your Loan amount is $500,000 for 30-year fixed and you pay a mortgage interest rate of 4.5% your monthly mortgage payment is $2533.43, and you pay $2,600 an extra payment (monthly) of $66.57. 

Then you’d pay off the 30 years loan only 1.5 years earlier, but you’d save nearly $25,000 in interest over the loan term.

The interest savings are larger because more interest is due on a larger home loan, but the term isn’t reduced as much because the rounded-up payment is smaller relative to the larger payment due at that loan amount.

 Savings from the rounded up mortgage payments are highly variable such as how large the loan is, what the interest rate is, and how much larger the rounded-up payment is. 

It also depends on when you start rounding up, and how often you do it. If you only round up your payment every other month, or if you start several years after your loan term began, the savings will be reduced.

There are some obvious pros and cons with rounding up mortgage payments, it can save you thousands in interest while allowing you to own your home free and clear a bit earlier. 

But be sure to do the math for your particular loan to see if it makes sense. You might find that your extra cash is better off somewhere else.