How to Reduce Your Mortgage
One Additional Mortgage Payment a Year
There's a simple trick to significantly reduce the length of your mortgage and save you thousands of dollars. The trick is to make one extra mortgage payment a year and apply that payment toward your loan's principal.
This is the method being used by "Bi-Weekly Mortgage Reduction Services" and "Bi-Weekly Mortgage Savings Programs". Only, when you do it yourself, you don't pay a third party unnecessary set-up costs and fees, and you pay it on YOUR schedule, when you have the funds available!
Example: $100,000 loan, 30-year mortgage, 6.5% fixed interest rate
Extra Mortgage Payments/ Year | Principal & Interest | Additional Monthly Payment | SAVINGS | Total Paid | # of Years | 0 | $632.07 | 0 | 0 | $227,542.98 | 29.92 / 359 mos. | 1 | $632.07 | $52.68 | $29,088.02 | $198,454.96 | 24.12 / 290 mos. | 2 | $632.07 | $105.35 | $46,492.13 | $181,050.85 | 20.5 /
246 mos. | 3 | $632.07 | $158.02 | $58,320.95 | $169,222.03 | 17.92 / 215 mos. | 4 | $632.07 | $210.69 | $66,969.79 | $160,573.19 | 15.92 / 191 mos. | 5 | $632.07 | $263.36 | $73,607.77 | $153,935.21 | 14.34 / 172 mos. |
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One-time Payment
It may not be possible for you to increase your monthly mortgage payment. Keep in mind that most mortgages will permit you to make additional payments to your principal at anytime. Perhaps, five-years after moving into your home you receive a larger than expected tax return, or an inheritance or a non-taxable cash gift. You could apply this money toward your loan's principal, resulting in significant savings and a shorter loan period.
Example:
With a $100,000, 30-year, 6.5% fixed interest rate mortgage loan, the borrower will pay a total of $227,542.98 to pay back the loan in 30 years. That equals $127,542.98 in interest payments.
If the same borrower makes a one-time $5,000 payment the first day of year 6, he/she will pay a total of $204,710.75 and pay off the loan in 27 years (324 months). That's a savings of $22,832.23 in interest.
Of course, there's also something to be said for taking the extra money you COULD pay on your principal balance and investing it instead, which is always a viable option, depending on what your long-term goals are. There are also Mortgage Accelerator programs available for disciplined borrowers who want to pay off their mortgage as quickly as possible.
Contact your mortgage planner today to create a financial plan that's right for you!
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