, either monthly or in a lump sum. Making extra payments reduces your principal, so you'll pay less in interest each month. Reducing your monthly interest means lower payments each month.pay extra toward your mortgage principal
. You could pay $100 more toward your loan each month, for example. Or maybe you pay an extra $2,000 all at once when you get your annual bonus from your employer. Extra payments can be great, because they help you pay off your mortgage sooner and pay less in interest overall. However,Some lenders charge prepayment penalties, or a fee for paying off your mortgage early. You probably wouldn't be penalized every time you make an extra payment, but you could be charged at the end of your loan term if you pay it off early, or if you pay down a huge chunk of your mortgage all at once.
Not all lenders charge prepayment penalties, and of those that do, each one handles fees differently. The conditions of your prepayment penalties will be in the mortgage contract, so take note of them before you close. Or if you already have a mortgage, contact your lender to ask about any penalties before making extra payments toward your mortgage principal.
Laura Grace Tarpley is the associate editor of banking and mortgages at Personal Finance Insider, covering mortgages, refinancing, bank accounts, and bank reviews.