# How to Save money with your home

By
Real Estate Agent

This is a rather long post, and I'm sorry.. YES it includes math.  However, if you read through it, you may find it helpful, I know many of my friends have.   This is also a previous post from another blog of mine.

How to save money with your home:

Did you know that you can make additional payments toward the principal on your mortgage? It's true, and I suggest you do it!  Here's why:

By making just one extra payment per year toward your principal, you will effectly shorten the time for payoff from 30 years to 22 years.

How can this save you money???

Besides the benefit of building extra equity into your home, lets look at the savings.

We'll use a \$100,000 mortgage as an example: (This is disregarding property/school taxes and insurance for the sake of simplicity)

Mortgage Amount: \$100,000
Term, 30 years: 360 months
Interest Rate: 6.5%
Monthy Payment: \$632.07

The total paid over 30 years would be \$227,544.49 (meaning you are paying \$127,544.49 in interest!)

NOW, lets look at the same loan with ONE extra payment per year.  We'll divide the payment by 12, so we pay a portion of it each month.

Mortgage Amount: \$100,000
Term is reduced to: 264 months
Interest Rate: 6.5%
Monthly Payment: \$632.07
+ Extra payment: \$52.67
Total Paid Monthly: \$684.74

The total paid over the 22 years would be \$180,772.02 (now you are only paying \$80,544.48 in interest, saving you a total of \$47,000.01).

So by paying an extra \$50/month toward your principal, you have just saved almost FIFTY THOUSAND DOLLARS.)

Now you may say, "But I'm not planning to stay in my house for 22 years, so I won't save that money."

OK, so let's say you are going to move in 5 years:

With the extra payment, you will have built up and additional \$3,160.20 equity in the home that you would not have had if you were paying the standard monthly payment.

So what's the point?  Take the \$50 every month, that at best is earning 1% interest in your checking account, put it toward your mortgage principal, and use it to save money you'd be paying 6.5% on.

NOTES:

-Check to make sure your particular mortgage allows additional payment toward principal (most do).

-See if this can be done automatically each month, if you have an automatic payment schedule.

- WHEN MAKING ADDITIONAL PAYMENT TOWARD THE PRINCIPAL YOU MUST MAKE IT CLEAR TO YOUR FINANCIAL INSTITUTION THAT THIS IS WHAT THE PAYMENT IS FOR.  Otherwise they will probably apply it toward paying additional interest, or add it to your escrow

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Rainmaker
364,185
Colleen Kulikowski
The Griffin Team @ Keller Williams Realty - Buffalo, NY
Creative Real Estate Solutions...
Anthony -- Congratulations on your first blog post!   There is so much here at Active Rain!   Don't get discouraged keep writing and Come Soar With the Big Guys!
Mar 14, 2007 11:59 PM #1
Rainer
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Anthony DiMattia
Rochester, NY
CBR, E-Pro

Thanks for the comment, and for the words of encouragement!  I certainly look forward to exploring all this site has to offer, and hope I can contribute something as well.

Mar 15, 2007 01:56 AM #2
Rainer
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Matt and Monica DiMattia
Prudential Zack Shore Properties - Lacey Township, NJ

Thanx for introducing us to ActiveRain - what a valuable source of information. Can't wait to share with others

Mar 18, 2007 09:29 AM #3

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Rainer
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CBR, E-Pro