Mortgage interest is simply part of the purchasing a home with a financial commitment due to the lender. Why not pay off your loan earlier and reduce the amount of interest you pay to your lender.
By paying your loan earlier. What if you could retire a few years earlier? What if you could pay off student loans? What if you could build more wealth by adding to your real estate portfolio? What if you could take that dream vacation? What if...?
Initially, homeowners consider their loan options of a 30 year fixed loan, a 15 fixed loan or an adjustable loan. Most first time buyers, purchase a home with a 30 year fixed-rate loan as it provides the most stability from the upward and downward movement in interest rate and comfort level to spread the monthly payment over 30 years. When should you rethink your mortgage? The best answer is often - especially when there are historically low interest rates. Your life changes and so does the market.
Here are 3 Ways to say "Adios" to Your Mortgage Faster
Here is the example. The Baker Family purchased a home for $250,000 with a 30 year fixed-rate loan with a 4% interest rate. The Baker Family made a down payment of 20% and secured a loan for $200,000. The monthly payment is $955.
1. Make Smaller Payments Every 2 Weeks
Most homeowners pay their lender monthly on the 1st of the month. If you make the half the monthly payment on the first and the second half of the payment on the 15th. By the end of the year, you will make an extra payment and end up saving thousands of dollars over the life of your loan.
For example, the Baker Family who has a monthly payment of $995 will make 2 payments of $477.50.
So what can the Baker Family do to pay off their loan early and save money. The Baker family will also reduce their loan term by approximately 3 years and save about $15,000 in interest payment. That is $15,000 savings.
2. Make a one-time Big Payment
A payment toward Principle can save thousands of dollars too. Some homeowners think that the one-time payment has to be a HUGE payment and that is simply not true. Perhaps a tax refund, an inheritance or a bonus can be applied toward the principal of your loan. One payment can have a life changing impact.
For example, the Baker Family applied their $5,000 tax return toward their principal of their loan. The Baker family reduced their loan term by 11 months and about $11,000 savings.
See how you can save. Click on the link Mortgage Savings Calculator
3. Make a Mortgage with Less Years
Refinancing can be a bit tricky. It is important to know the cost of a refinance option. If the cost makes sense, a refinance can be a great way to reduce the loan term, save thousands of dollars in interest payments and increase equity faster.
After five years, the Baker Family has decided to refinance their home with a 15 year fixed-rate mortgage with a 3.5% interest rate. They have paid down some of their loan and their new balance is $181,000. By refinancing with a 15 year fixed-rate loan, the Baker Family is reducing their loan term by 10 years, about $54,000 savings in interest payments and building equity quickly. The baker family has an increase in month payment of approximately $340.