I have a 30 year loan on my house
If i make a extra payment on my house every year will it pay it off
faster?How much fater?
If i make 2 payments extra each year what will that do?How much faster?

I once worked in a company that had a mortgage repayment routine which
could be accessed from a remote terminal. There were four variables;
Capital sum; repayment period; Interest rate and monthly repayment. By
typing in any of the three knowns, you could find the fourth. I knew
all four variables as they applied to me at the time but what I did
was to increase the monthly repayments from the minimum (100%), to
110%; 120%; 130%.....200%. I found that if you increased the monthly
repayments to 133% it would cut the repayment period in half ie. from
25y to 12.5y. The greatest advantage was with the first 10% which
brought the term (memory is not so good these days)to less than 20y on
a 25y mortgage. Each additional 10% produced significant but reducing
time periods until the 133% optimum. After this reductions of the loan
period continued but became less significant. I concluded that if you
can afford it, paying one third each month more for half the loan
period will cut the total purhace cost in half. If you can afford more
it is better to (1) get a bigger house, or (2)Pay the one third more
off the existing house and put the extra into a high income investment
which can be used to pay the remaining capital in one hit when it is
great enough.

Regards 

Norman

To answer your question precisely, it would help if you provided
details such as the interest rate, balance remaining, and number of
years remaining.  You say it is a 30 year mortgage, but you could be
in year 1 of 30 or year 10 which would make a big difference.

I am not a paid researcher here, but do have experience in your question area.
The Micosoft Money utilities (probably came w/your PC) has a simple,
easy to use side-by-side loan comparison calculators. There are many
other free amortization tools out there.  Your question has too many
variables to be directly answered as it is.  Try playing with the
comparative calculator and see which of the options that you
realistically have make the most difference over time without putting
undue stress and expectations in your life.
Best of luck to you = synapse666b

If you're starting in year 1, then here's the scoop:

At reasonable interest rates (5% - 10%), making an extra payment every
year will cut about 1 year off your mortgage for every 1% interest on
a 30 year loan.

At 5% you will be paying for 25 years instead of 30.
At 10% you'll be paying for 20 years instead of 30.

Before doing this, please take into consideration that your home
mortgage is about the best loan you'll ever have.  Since it is backed
by your house, the interest rate is relatively low.  Also, all the
interest you pay is tax deductible (assuming this is the house you
live in).  With these in mind, you can see that having a mortgage
isn't a horrible thing.

If instead of making that extra payment, you put the money into an IRA
then you will see more benefits than you would by paying off your
house quicker.  All the money you put into the IRA is tax deductible. 
Also, the slightly more interest you'll be paying on your mortgage is
tax deductible.  In essence, the government is paying you to
a) keep your mortgage
b) invest for your retirement

If you pay off your house rather than invest in an IRA then you lose
out on both of these tax breaks and you'll be worse off financially.

Not so Jack, It's financially better not to pay the interest than get
a tax break on it.

Norman

Norman, I don't think you read my whole post... and if you did and
didn't understand then please let me show you some math:

Let's say you owe $100,000 @ 6% interest.  The yearly interest on that
(at the beginning of the loan) is $6,000.  That means you pay $6,000
interest and get a $6,000 deduction (that's worth about $2,000 off on
your taxes), so in essence you are only paying $4,000 to have the
$100,000 borrowed.

JumpinJake has some extra cash to either pay down his debt owed or
invest in an IRA.  Let's say he has $2,000 to use in either of these
ways.  Jake can
a) pay his debt down to $98,000:
    his interest payment for the year would be $5,880.
    his tax deduction would then be worth about $1960 (instead of $2000)
    NET GAIN: $80 ($120 saved in interest payment minus $40 in extra taxes)

b) put $2,000 into an IRA
    his interest payment will remain the same ($2000)
    he will receive a $2000 tax deduction for the IRA which will save him about
    $667 when he pays taxes (more likely when he gets a tax rebate)
    He will also gain any interest he earns in his IRA (if he plays it
extremely safe and get government bonds then he will earn about 4%
interest which is $80... getting more than 4% is quite likely, but so
there is no question that this option is better, we will assume 4%)
    NET GAIN: $747

I don't know anyone who would take $80 over $747.  Even if you have to
liquidate your assets, the IRA will only charge a 10% penalty... which
means the $747 would be reduced by 10% of the total amount which would
be $208 (10% of $2000 + 10% of the $80 interest).  That still leaves
$539 ($747 - $208) which is still way better than $80 which you save
by paying less interest.

As you can see, no reasonable person with these facts would pay off
their mortgage early when their IRA isn't maxed out for the year.  As
I said, the government gives incintives to invest for retirement and
have a mortgage.  Why not take advantage of the free money they want
to give you?

You need to get an ammortization printout from your lender.  When you
do, cross off all payments you have made up to the next payment due. 
Notice the print out separates your payments into PRINCIPAL, INTEREST,
and TOTAL (Total is your payment). When you send in "extra" money,
send in the next applicable "PRINCIPAL" payment (or as much as you can
afford, just add up "principal amounts," and cross them off) along
with a regular mortgage payment, then cross off both lines.  You will
have saved the money from that single payment's "interest" and taken
ONE payment off your loan.  Any "principal only" payment you make
takes one payment off the end of your loan. Lenders prefer it be done
this way otherwise you are not paying in the increments set forth by
the loan.

Many loan payment booklets have a section for this called "additional
principal payment."

If you need more information about this, let me know and I'll find an
online explanation and post it in the Answer Box.

~~Cynthia

If you are in the early earrs of your loan, interest is WAAAAAY higher
than the principal.  As an example, if your total payment is $1,000,
on a brand new 30 year loan, the principal portion is about $30.00 and
interest is about $970.00.  The early years are the best time to send
in additional principal payments.  Say you are ready to mail off a
$1,000 payment in April.  You can also send in March, April, May,
June, July, August, September, October (8 PRINCIPAL payments) that
will total approximately $30.00 X 8, and effectively skipped 8 months
worth of INTEREST off the EARLY portion of your loan. You can pay down
your loan this way and cut your interest considerably.

~~Cynthia

Sorry BB, 

I did read all of your post but as you suspected, I didn?t understand
it completely. It?s a cross culture thing. I guess everybody in
America knows what an IRA is but (seriously) the only one I have ever
heard of is the terrorist organisation. It?s like that film a few
years back called ?Green Card?, to us Europeans, it?s a document
issued by an insurance company that allows you to drive your car in a
country other than the one in which it was originally insured.

The logic of your answer makes sense; it?s a case of putting tax free
earned money into a pension fund which accrues for maturity when you
retire. I guess there is a limit to what you can put in which is what
you referred to as ?maxing out?. Is this a fixed level for everybody
or income dependant and does it matter if you are an employer or
employed?

As you have demonstrated this route gives the maximum benefits.
Jumpinjake?s original question also makes sense at least to me. If you
have, for instance enough money to clear your mortgage by half the
term, then you, in theory can do it all over again with a much bigger
place, assuming you wanted to otherwise you would be back on max. tax.

I fed your figures of $100,000 @ 6% for 30 years into an annuity
amortisation calculator at http://joemath.com/finance/ .

Their monthly repayment came out to $599.55 so this is what I used as
a basis. I then increased this by amounts of 10% to see what effect
this had on the term and the total cost of the house. I have put this
into a table below. Years saved are for each additional 10%; $ savings
are total.

%     Monthly      Yrs    Years Saved     Total Cost   $ Savings

100   599.55      30.0       -              215838         -

110   659.51      23.71     6.29            187643       28195

120   719.46      19.83     3.88            171202       44636

130   779.42      17.14     2.69            160311       55527

140   839.37      15.13     2.01            152396       63442

150   899.33      13.56     1.57            146338       69500

160   959.28      12.31     1.25            141704       74134

170  1019.24      11.27     1.04            137842       77996

180  1079.19      10.40     0.80            134682       81156

190  1139.15       9.66     0.74            132050       83788

200  1199.10       9.01     0.65            129646       86192

The turning point between the graph decreasing vertically and
decreasing horizontally occurs at about 133% of the original monthly
sum at which the point the period to normal completion is half.

As you say in your first post, this all depends on the increased
payments being made from the beginning of the loan. However the same
sort of logic will apply whenever increased payments are started.

Your solution gives higher total savings; the above however is the
answer to jumpinjake?s  original question.

Norman.

Norman, 

You asked a bit about the IRA (not the terrorist organization).  Sorry
I wasn't clear before, I do make the horrible mistake of assuming
everyone is American.  It is in fact rather foolish of me.

The government allows everyone in the US who has any income to put
money into an IRA.  The maximum amount allowed for almost everyone is
$4,000 annually (but if your income is less than $4,000 then you're
limited to invest only as much as your income for the year).
The government then allows you to deduct that $4,000 from your income
when filing your taxes (the tax rate in the US is somewhere around 30%
depending on how you look at it and how much you earn).  So in essence
the government is funding 30% of your investment.  For lower income
earners (under $25,000 single or $50,000 married), the government also
gives additional tax credits for putting money in an IRA.
The IRA is simply a tax shelter for your money.  The money can
actually be invested in any of a wide variety of assets (stocks,
bonds, mutual funds, index funds, government bonds... public or
private).  In addition to the tax deduction and possible credits, the
money then grows tax differred until you withdraw it in retirement.

Unfortunately not everyone in the US knows about the IRA and many
fewer don't understand quite how beneficial it can be.  So it turns
out the the typical investors in the IRA are already rich and will
have no problem saving for retirement with or without the IRA... and
the poorer majority of the public continue to not save enough to live
decently past the age of 70.

You should also take into account how long you plan to own your home
and if there are prepayment penalties on your loan.  Some mortgage
lenders do not want to lose future revenue by you paying your loan of
early so they tack on prepayment penalties.  If you typically move
every 5 years or less, you may be better off with a low rate interest
only loan.  You do not build up equity but most people who sell under
5 years get little equity from payments and mostly from appreciation
in the cost of houses.  You can find a great mortgage calculator and
many FREE reports that will be useful to you at: www.flhomelender.com