Reduce your mortgage by pre-paying principal and eliminate your interest.
The best advice my father-in-law ever gave me was to make one extra house payment per year. You can calculate the difference that advice can make in the stellar blog here. Bankrate.com also has calculators that will help you model the amortization tables when you add extra payments. You can also divide that one extra payment by 12 and add that to your monthly payment. Be sure to read your loan terms to make sure there are no prepayment penalties.
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 3. Payment 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.)
