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Mortgage Saving Tips
Below are a number of strategies and tips to saving money on your mortgage. Most of the savings basically comes from prepaying your mortgage in one form or another. Here are a few tips to building equity faster.
Tip 1 Make One Additional Mortgage Payment a Year
Here's a simple tip or trick to significantly reduce the length of your mortgage, saving you thousands of dollars over the life of your loan. The tip is to make one extra mortgage payment a year and apply that payment toward your loan's principal.
Tip 2 Start a Bi-Weekly Mortgage Savings Program
. When you first open your mortgage or refinance, many lenders will let you establish a Bi-weekly mortgage savings program. Essentially, you make half your monthly payment every 2 weeks, and since the principal is collected ahead of when it is due, you wipe 2 weeks of interest off your mortgage by doing nothing more than changing your payment dates. Here's another tip;when you do it yourself, you don't pay a third party unnecessary set-up costs and fees, thus saving a few more dollars.
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. | |
Tip 3 Make a One-time Payment
It may not be possible for you to increase your monthly mortgage payment. However, keep in mind that most mortgages will permit you to make additional payments to your principal at any time. 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.
Hopefully these mortgage savings tips will help you on the way to building equity faster and paying your home off sooner.
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