Reduce your mortgage by pre-paying principal and eliminate interest.

By
Managing Real Estate Broker with Cornerstone Business Group Inc 0225086119
http://actvra.in/pbc

Homeowners know that a mortgage is a great way to buy a house.  But, too many don't realize just how much a mortgage can run the price of house up over the course of a loan. 

If I told you that I would sell you a $200,000 house for $364,813.42 you would never do it, but a 30 year mortgage can run the purchase price of a house up $164,813.42 in interest at 4.5% over a 30 year mortgage.

There are ways to reduce that number that are simple and within reach.  Anytime you take out a mortgage, make sure you have the privilege of pre-paying principal without penalties.  Let me show you how this works.

Let's start with a $200,000 mortgage with the first payment beginning January 1st.  Interest is loaded on the front of your mortgage, so your early payments are predominately interest.  Let me give you an example.  Payment one is $1013.37.  Of that fee, only $263.37 is paid on the principal.  The remaining $750.00 is interest.  On month 2, your second payment is $1013.37 of which $264.36 is principal and $749.01 is interest.

                

So, in two months, you have paid $527.73 in principal and $1499.01 in interest.  Now, if you add the principal of the second month with your first payment you can skip the interest on payment two.  So, on January 1 you would pay $1277.73.  That eliminates $749.01 in interest from your loan.  

In February, you would pay payment 3Payment 2 has been paid with the January payment - minus the interest which you won't ever pay.  In February, if you paid the principal of month 4, $266.34, you can skip the interest of $747.03.  In two payments, you have reduced your overall mortgage costs by $1496.04 in interest.  If you repeat that every month throughout your mortgage, you can radically reduce the overall interest costs of your mortgage.  There is another way to pay your mortgage off early and reduce the overall interest.  I'll show that in the next blog.

close

Re-Blogged 4 times:

Re-Blogged By Re-Blogged At
  1. Wallace S. Gibson, CPM 12/05/2011 07:46 AM
  2. Gayle Barton 12/05/2011 08:41 AM
  3. Charles Stallions 08/21/2012 06:07 PM
  4. Melanie Narducci 03/30/2013 10:17 AM
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Rainmaker
412,435
Michelle Francis
Tim Francis Realty LLC - Atlanta, GA
Realtor, Buckhead Atlanta Homes for Sale & Lease

Mike, 

We do this on both our personal property and our investment properties.  It's a great way to shorten the loan timeframes and costs.  Life is good. 

All the best, Michelle

Dec 05, 2011 08:29 AM #5
Rainmaker
1,859,416
Lisa Von Domek
Lisa Von Domek & Associates LLC Team - Dallas, TX
....Experience Isn't Expensive.... It's Priceless!

Good morning Mike,

Great reminder for everyone, a little extra principal paid each month adds up to a shortened mortgage very quickly!

Dec 05, 2011 08:32 AM #6
Rainmaker
1,109,596
Mike Cooper
Cornerstone Business Group Inc - Winchester, VA
Your Winchester, VA Real Estate Sales Pro

It's pretty simple, Joanna. 

That's a good plan, Bliz. 

Absolutley, Michelle.  That's a great way to handle your properties.

You bet, Lisa.  Have a great day!

Dec 05, 2011 08:36 AM #7
Rainmaker
198,437
Gayle Barton
BERKSHIRE HATHAWAY Georgia Properties - Cumming, GA
Forsyth County Real Estate - Cumming GA Home Sales

Helpful info Mike.  I'm sure many homeowners are confused by just how that works. I'm passing it on....

Dec 05, 2011 08:44 AM #8
Rainmaker
1,109,596
Mike Cooper
Cornerstone Business Group Inc - Winchester, VA
Your Winchester, VA Real Estate Sales Pro

Thanks, Gayle.  That was my goal.  Have a great day!

Dec 05, 2011 08:48 AM #9
Rainer
422,171
Peggy Chirico
Prudential CT Realty - Manchester, CT
REALTOR® 860-748-8900, Hartford & Tolland County Real Estate

Hi Mike - Great illustration of important information.  We just looked into the numbers of paying half the monthly amount every two weeks and even that yielded significant savings!

Dec 05, 2011 08:49 AM #10
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John McCormack
Albuquerque Homes Realty * www.AlbuquerqueHomes.com - Albuquerque, NM
AlbuquerqueHomes.com, Albuquerque Homes Realty

Excellent and filled with easy to understand information!  Thanks Mike and make it a great day in all you do!

Best regards from the Q

Dec 05, 2011 08:49 AM #11
Rainmaker
1,109,596
Mike Cooper
Cornerstone Business Group Inc - Winchester, VA
Your Winchester, VA Real Estate Sales Pro

Excellent, Peggy.  I think that works out to an extra payment a year of all principal.  Good for you!

Thanks, John.  You do the same!!

Dec 05, 2011 08:50 AM #12
Rainmaker
1,919,085
Anita Clark
ColdwellBanker SSK Realtors ~ 478.960.8055 - Warner Robins, GA
Realtor - Homes for Sale in Warner Robins GA

Excellent consumer mortgage information Mike.  If feasible, paying off the mortgage and being debt free is the only way to go!

Dec 05, 2011 09:14 AM #13
Rainmaker
1,109,596
Mike Cooper
Cornerstone Business Group Inc - Winchester, VA
Your Winchester, VA Real Estate Sales Pro

Agreed, Anita.  If nothing else good has come out of the current economy, that lesson has been well learned. 

Dec 05, 2011 09:29 AM #14
Rainer
307,499
Jennifer Chiongbian
Specializing in all types of Manhattan apts & townhouses - Manhattan, NY
Real Estate Broker - NYC

I always try to pay more of the principal when I can.  I think of it as my piggy bank where I keep socking away into it and when I sell, I can cash in the extra money I out in the house.  

Dec 05, 2011 01:15 PM #15
Rainmaker
1,109,596
Mike Cooper
Cornerstone Business Group Inc - Winchester, VA
Your Winchester, VA Real Estate Sales Pro

You're a smart lady, Jennifer!

Dec 05, 2011 02:55 PM #16
Rainmaker
329,635
Thomas J. Nelson, Realtor
Big Block Realty - La Jolla, CA
Connecting Good People to San Diego Homes!

I just saw this post. I knew we could pay extra, I never realized if I paid month #2's full principal payment in month one they'y...not bill me month 2, is that what you are saying? So basically I skip every other month's interest and only pay principle by frontloading it every other month? I'm I getting this right? Love to chat with you about this more.

Apr 12, 2012 03:35 AM #17
Rainmaker
655,772
Joetta Fort
The DiGiorgio Group - Arvada, CO
Independent Broker, Homes Denver to Boulder

I was just explaining this to my client yesterday.  I should do a blog post too, so I don't have to scribble all over scratch paper to do it!

 

Jun 10, 2012 06:30 AM #18
Rainmaker
309,921
Kasey & John Boles and the team at Jon Gosche Real Estate, LLC
Jon Gosche Real Estate, LLC, Boise ID - Boise, ID
Boise, Meridian, Ada/Canyon/Gem/Boise Counties

Yes!  I love that you can prepay and knock interest off and get the house paid off more quickly.  I am trying to do that for sure. -Kasey

Oct 17, 2012 12:46 PM #19
Rainmaker
1,109,596
Mike Cooper
Cornerstone Business Group Inc - Winchester, VA
Your Winchester, VA Real Estate Sales Pro

Good for you, Kasey.  It's a great way to save a lot of money on interest.

Oct 17, 2012 02:07 PM #20
Rainmaker
947,912
Tim Lorenz
TIM LORENZ - Elite Home Sales Team - Mission Viejo, CA
949 874-2247

I agree with the philosophy. Get a 30 yr loan and pay like a 15. If something happens to you drop to the lower interest.

Mar 30, 2013 10:24 AM #21
Ambassador
1,320,801
Michelle Carr-Crowe-Selling Silicon Valley Homes in Top Schools San Jose, Cupertino, Saratoga, Palo Alto-Just Call 408-252-8900
Just Call (408) 252-8900! - San Jose, CA
Family Helping Families Buy & Sell Homes 40+ Years

Yes that is the best way to approach paying off a mortgage early.

Apr 03, 2013 11:11 PM #22
Rainmaker
1,627,341
Will Hamm
Hamm Homes - Denver, CO
Hello Mike great information to past on to clients, a little bit does add up.
Sep 14, 2013 11:18 AM #23
Rainmaker
109,703
Mark Neighbor
A O Home Solutions - Sell House Georgia - Buy House Georgia - Mc Donough, GA
Sell House Fast In Georgia

Hello mike good information. Thank you for posting. Looking forward to reading more from you . 

May 25, 2016 07:43 AM #24
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