Take Interest in Your Mortgage

As you line up your financial goals for 2011, you may be wondering if you can still save money on your mortgage.

We've got two good options for you. First, there's the obvious appeal of refinancing—which we wrote about in July. Interest rates are about as low as they were then.

But if you don't want to refinance, or you're not sure how long you're going to be in your home, you could make a slightly larger mortgage payment each month—or make one extra payment each year.

Pre-paying your mortgage gives you some of the advantages of refinancing, in that you save quite a bit on interest—but don't have to pay the fees. Example:

A $250,000, 30-year mortgage at 5.5% gives you a monthly payment of $1,419.47 (not including escrow).

At that rate, you'd pay $261,010 in interest alone, after 30 years.
  If you added $100 per month, you'd pay $216,132 in interest, and your loan would be paid in 26 years—saving you $44,878. One extra mortgage payment per year would save you almost $50,000 after 25 years.
But let's be realistic, and assume you stayed in your home for 10 years. If you made one extra payment each year, you'd still save $4,200 in interest—and you would have paid down $18,397 more in principal.

With interest. Do you think it's worth pre-paying your mortgage? Would it be smarter to invest the money in the market?