You can shave thousands or tens of thousands of dollars off the long-term costs of your mortgage by prepaying. There are several ways to do it. You can add a little extra to your regular monthly payment, make one extra payment a year, or pay half your regular payment every two weeks, which equates to paying an extra full payment each year.

If you had a thirty-year mortgage for $100,000 at 7 percent interest and you paid an extra $25 every month, you'd cut more than three years off the length of the mortgage and save over $18,000 in interest. However, please note that when mortgage rates are significantly lower than other consumer borrowing rates, it makes more sense to pay off your high-interest credit card debts first.

When you make extra payments, be sure to tell your lender to apply them to the principal. Don't pay a company that offers to set up a prepayment plan for you for a fee. It's totally unnecessary when you can achieve the same thing yourself as easily as including the extra amount in your check and writing “Apply extra payment to principal.”

Before making prepayments, check with your lender and read the fine print of your loan documents to make sure your lender won't penalize you for prepaying part of your mortgage in the first three to five years of the loan. These prepayment penalties are rare in the primary mortgage market (lenders who directly negotiate mortgages with borrowers), but common in the subprime market (investors who buy and sell pools of mortgages from lenders, which makes mortgages more accessible to those with less than perfect credit). Even if your loan does have a prepayment penalty, you'll probably be allowed to prepay up to 20 percent of your mortgage in any twelve-month period without incurring a penalty.