For business owners, smart financial planning can make the difference between success and failure. It can provide you with a nest egg for emergencies and ensure you can meet all your financial obligations. If you already have a commercial mortgage or are considering one, a mortgage calculator can help you plan and manage your finances. You can explore how making an extra payment on your mortgage can benefit you now and in the future.
Understanding Mortgage Basics
Before you can start making smart financial choices about a mortgage, you need to understand the basics. There are some key terms that you want to know. These include:
- Principal: The principal is the amount of money that you borrowed for the mortgage. The principal lowers when you make a mortgage payment.
- Interest rate: The interest rate is a predetermined percentage of the principal owed. The amount you pay in interest changes from one mortgage payment to the next because the principal amount becomes less.
- Loan terms: Loan terms are all the details agreed upon for the loan. This includes interest rates, the length of the loan, fees, due dates, payment schedule, and penalties.
A mortgage calculator can provide you with an estimate of your monthly payments. You can change factors, such as the interest rate, down payment, and number of payments, to see how it affects your monthly payment.
The Power of Extra Payments
In the first years of your mortgage, the bulk of your monthly payments are going towards interest owed and not the principal. When you can pay a few extra dollars, you lower the principal and the interest owed, so that more of your payments go towards the principal amount. It is a cycle: lower the principal, lower the interest, more of your payment goes to principal, and lowers the interest.
Over a couple of years of extra payments toward the principal, you can significantly lower the amount of interest you pay over the life of a loan. For example, let us say you borrowed $250,000 with an interest rate of four percent over 360 months (30 years). If at the start of your mortgage, you pay an additional $200 every month, you will pay off your mortgage seven years and two months earlier.
Using a Mortgage Calculator with Extra Payments
A mortgage calculator to determine the impact of extra payments allows you to change a few of the variables.
These include:
- How much that you want to pay extra
- Number of months remaining
- Original number of months
- Interest rate
- Amount of the original principal
You can use the calculator and adjust the variables to see how quickly you can pay off the mortgage in certain scenarios. Obviously, the more you pay additionally, the fewer payments you need to make.
Benefits for Business Owners
As a business owner, you are always trying to make the best financial moves. Here are a few benefits of making extra payments on your mortgage.
Financial Flexibility
When you reduce your mortgage principal, it gives you more capital to use in some other way in your business.
Improved Cash Flow
If you pay off your mortgage a year earlier or five years earlier, you do not have that monthly payment anymore, and you have more cash on hand.
Risk Reduction
Paying off your mortgage earlier means that you do not have to worry about missed payments or foreclosure if times get hard.
Strategies for Making Extra Payments
Here are a few strategies for making extra payments without feeling overextended.
Budgeting
You can find the money for an extra payment through budgeting. It can come from money you save by finding a new supplier or closing an hour earlier on slower nights.
Savings
Create or open a savings account for the extra mortgage payment. You can move the money once a month when you pay your mortgage.
Windfalls
If you make a major sale or get a bonus, you can use that money to make an extra payment.
Tax Implications
There might be tax implications when making extra payments on your mortgage. You should discuss these with a qualified tax professional.
Additional Resources
MIDFLORIDA offers a variety of financial calculators for you to determine the best steps for you. This includes mortgage calculators. We also offer a wealth of other resources, such as financial literacy resources and online banking tutorials.
MIDFLORIDA Credit Union Can Help You Make Smart Financial Moves
Making extra mortgage payments can help your business pay off your mortgage more quickly. You can use a mortgage calculator to see how an extra payment can affect your mortgage. It is time to put the mortgage calculator to work for you. Contact one of our professionals today.
