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.

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Give me a call for all your real estate needs, and let's make something amazing happen.

Mike Cooper @ Cornerstone Business Group, Inc., 888-722-6029

Real Estate Sales and Property Management

(Disclaimer:  All grammatical mistakes, punctuation breakdowns and misspellings are purely for your amusement and entertainment.   Feel free to cackle.)

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20 Most Recent Comments Displayed Show All

DEC
05
2011
 Great illustration Mike - the numbers speak loud and clear! 8:13am • #3
 Mike, I've always included some extra principal on each payment.  I think our 30 year pays off in about 22 years or less, and obviously we could accelerate that with increased payments.  Nice to watch that total shrink :) 8:26am • #4
 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 8:29am • #5
 Good morning Mike, Great reminder for everyone, a little extra principal paid each month adds up to a shortened mortgage very quickly! 8:32am • #6
 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! 8:36am • #7
 Helpful info Mike.  I'm sure many homeowners are confused by just how that works. I'm passing it on.... 8:44am • #8
 Thanks, Gayle.  That was my goal.  Have a great day! 8:48am • #9
 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! 8:49am • #10
 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 8:49am • #11
 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!! 8:50am • #12
 Excellent consumer mortgage information Mike.  If feasible, paying off the mortgage and being debt free is the only way to go! 9:14am • #13
 Agreed, Anita.  If nothing else good has come out of the current economy, that lesson has been well learned. 9:29am • #14
 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. 1:15pm • #15
 You're a smart lady, Jennifer! 2:55pm • #16
APR
12
2012
 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. 3:35am • #17
JUN
10
 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! 6:30am • #18
OCT
17
 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 12:46pm • #19
 Good for you, Kasey.  It's a great way to save a lot of money on interest. 2:07pm • #20
MAR
30
 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. 10:24am • #21
APR
03
 Yes that is the best way to approach paying off a mortgage early. 11:11pm • #22

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Mike Cooper

Winchester Real Estate Sales, Cornerstone Business Group Inc

Office Phone: (888) 722-6029

Cell Phone: (540) 336-5522

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