Final answer:
Paying extra on a monthly mortgage payment can indeed save a significant amount of money by reducing the total interest paid over the life of a 30-year mortgage. By decreasing the principal balance faster, homeowners can accrue less interest, thus compounding savings over time and building equity quicker.
Step-by-step explanation:
Contrary to the statement that paying extra on a monthly mortgage payment doesn't save much money, the reality is quite different. Paying more than the required payment can significantly reduce the amount of interest paid over the life of the loan. Considering the example of a $1,000,000 loan with a 30-year mortgage, the interest paid can more than double the original loan amount. If you were to pay $5,995.51 every month for thirty years, the total paid would exceed $2.1 million, which is more than twice the original loan.
By paying more each month, homeowners can decrease the principal balance faster, which reduces the amount of interest accrued. Since interest is calculated on the remaining balance, a reduced principal means you are charged less interest over time. Additional payments early in the loan term have the greatest impact, as they have more time to compound the savings on interest.
It's also important to consider other additional costs of homeownership, such as maintenance and utilities, along with the benefits such as owning an asset that may increase in value. Making higher payments towards the mortgage payment can also help in building equity quicker and can provide financial security and savings in the long run.