Say I buy a house for $45,000, but I put $10,000 down, so the mortgage is $35,000.

The payments (including insurance and taxes) would be a little less than $400, but say they're exactly $400 for the sake of simplicity.

If I have extra money, I can pay $500 a month to pay off the mortgage faster, but wouldn't it make more sense to take that extra $100 a month and put it into some sort of interest-bearing account, then make one large payment to pay the mortgage off once I have enough saved up?

That's easy.

Will the amount saved per month + interest outweigh the added interest of paying your mortgage off over a longer period?

get some numbers from the bank?

But it would take the same amount of time to pay the mortgage off either way...

I'm saying instead of paying the extra $100 to the mortgage company every month, why not put the $100 into a savings account, then when the amount in the savings account matches the amount that you owe on the mortgage, pay the rest of it off in cash using that money.

You're charged interest on a mortgage. It's a bank loan.

To get a fuller picture, you can look up amortization tables; or if they're confusing, then go with mortgage tables.

It's usually a better idea to pay the extra directly onto the mortgage; however, many mortgages regulate how much, or how often, you can pay down your principle. If it's carefully regulated, then saving and making balloon payments is a good idea.

Ok, here's my new question:

If I add $100 extra a month to the mortgage, I'll pay it off in October of 2022 (assuming that I take the loan out in January of 2009), shortening the term by 16 years and 2 months.

However, if I add an extra $1200 payment once a year, it will be paid off in May of 2022, shortening the term by 16 years and 7 months.

Why is there a difference? I'm assuming it has something to do with the interest, but I don't understand it.

I prepay my mortgage by $100 per month, but really...It's not making that much of a dent in my loan amount. In October of 2007 I owed 109,000 and now I owe 107,000./shrug The only way prepaying makes sense is if you plan to stay in the house for at least 5-10 years or more. A $45,000 house doesn't sound like a place you'd want to stay in for all that long. I mean it must either be really small, or really deep in the ghetto. If I were you, I'd save up a bigger downpayment and buy a nicer place. Then your property value will consistently increase and it will be a home you want to stay in for a long time.

My husband and I put $28,000 down on our house (We paid $136,000 for it total). It was more expensive than a lot of other homes, but the one we bought is a big 3 bedroom, 2 1/2 bathroom home with wood floors and a MASSIVE brick fireplace. It's in a really nice neighborhhod in the best school district in Augusta. I know you don't have any kids, but if you want to sell your house, the people who want to buy it might have them and then the quality of the schools becomes important.

Just something to think about.

On a $35,000 mortgage, it makes a huge difference. $100 a month shortens the mortgage by 16 years and 4 months, meaning I would pay it off 13 years faster. (I think I was using a different interest rate than I was last night, which is why the results are slightly different.)

A house on the same street with 3/2.5 and 1160 sqft is selling for $79,000, and a 3/2 1204 sqft house is selling for $65,000. According to house-almanac.com, the average price for a house on that street is $61,505.

It's in a nice area of town, but it is on the small side. It has 2 bedrooms and 1 bathroom, and it's 750 square feet. But since I'll be the only one living in it, that's perfect. It's less house for me to clean and less house for me to have to pay to heat and cool.

Here are some pictures of it:

Have property values been dropping there?

If you are content to live in a small place, I would just continue to rent, if I were you. A 750 square foot house is EXTREMELY small...For a house, anyway. The pictures you posted show a home that hasn't been updated any time recently. You'd probably have to put some money into the house pretty quick. The resale value on that place isn't going to be that great...It could be pretty difficult to find a buyer for a 2/1 house. Most people want a 3 bedroom home, even if they don't have any kids yet. I would stick to renting a nice apartment for now. You're young and single...Why tie yourself down to one place?

I'm not sure about the actual values on paper, but housing prices have dropped like crazy.