Taking out a 30 year fixed rate loan may be the most affordable mortgage for staying within your budget. You may feel like unable to pay more when you first take out a mortgage, but it is
Paying Off Your Mortgage 7 Years Faster
Dated: December 28 2020
Taking out a 30 year fixed rate loan may be the most affordable mortgage for staying within your budget. You may feel like unable to pay more when you first take out a mortgage, but it is during those early months and years that the greatest amounts of interest are being charged. Loans are interest-heavy in the beginning but can be reduced with larger payments against the principal. The faster you pay down the principal on the loan, the faster your equity grows. Take a look at your loan amortization schedule and you will see exactly what I’m referring to. For example: If you take out a thirty year loan for $200,000 at four percent interest, and only make the minimum monthly payment of $954, over the course of the loan you will pay a total of $343,739.
If you are current on your payments there are two options for slashing the amount of interest you pay over the course of a loan. (If you are behind on your payment the extra payments will go toward catching you up.) Option one is to see if your lender accepts bi-weekly payments. With bi-weekly payments, you pay half of the monthly mortgage payment every 2 weeks, rather than the full balance once a month. This is comparable to 13 monthly payments a year, which can result in faster payoff and lower overall interest costs. I do not suggest using bi-weekly payments because usually your lender charges you to set the program up, also if your lender withdraws half of the monthly payment from your bank account every half of the month, but apply the payments to your loan only once a month (as they did before), you will save nothing at all.
The second option to paying off your loan faster is to make an additional 1/12 payment. For instance, if your mortgage payment is $954 a month, add another $79 and let the lender know you want it applied to the principal only. The additional 1/12 payment like the biweekly payment is comparable to making 13 monthly payments over a year. This small change will allow you to pay your mortgage off approximately seven years faster! I prefer this option because it costs nothing to set up and you have the flexibility to make the additional payment when your budget allows. Lets say you have unsuspected bills one month and are unable to pay the additional 1/12 payment you just send in your minimum payment. You are under no obligation and in complete control of when you would like to make the additional payment.
- Darryl Robinson
I'm an Air Force veteran, with nearly 10 years in real estate. Finishing in the TOP 10% of AGENTS in Charleston the past 3 years I have helped countless families locate and purchase their dream homes.....
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