Mortgage Acceleration Tactics
The mortgage acceleration strategies discussed in this article will pay off your mortgage on average of 3-10 years earlier. Well after any prepayment penalty that your lender may have set in place. Most prepayment penalties range from 2 to 3 years after aquiring your loan. So if you can pay off your loan in 2 to 3 years this article was not written for you.
Mortgage Defined
The word mortgage is derived from the two French words "mort" meaning death and "gage" meaning pledge. A pledge to death. So when you negotiate your way into a mortgage you are making a pledge to pay for the rest of your life.
Send in Extra Money...Blah Blah Blah
I have read and researched the articles that tell you to send in extra money every month and create a budget to pay off huge debts in a hurry etc, etc. What if you are not that well disciplined when it comes to budgeting. What if you are the person who is streched to the penny when it comes to paying off bills and other monthly recurring debt? I read about one woman who sent in her tax return and scrimps every extra penny to pay down her mortgage. Personally I would like to leverage my money to the max so that I can still pay my bills enjoy my life reduce the amount of interest I pay every month without paying anything extra.
Understand Amortization
By understanding how the interest on your home loan is calculated every month you can mail your payment in early to decide how much of a savings you aquire on your interest. For example lets say you have home loan amount of $165,000 at a 7.00% interest rate. Most mortgage loans are amortized on a monthly basis. So using this example take $165,000 times the 7.00% interest rate = $11,550 in interest payments on your home for the first year. Divide $11,550 by 12 months = $962.50 of interest per month you pay on your home loan the first year. Now divide $962.50 by 30 days per month and you are paying $32.08 worth of interest per day on your home mortgage loan. If you send in your original loan payment in 10 days before the due date, 10 x $32.08 = $320.80 you saved by not paying one penny extra on your mortgage payment and just paying it 10 days early every month. You just saved yourself $3,208.00 in interest payments in your first year. Don't take my word for it look at the difference on your mortgage statement every month this is the true deciding factor. Make sure your mortgage company applies the payment early so you do not lose the advantage of an early payment.
Pay Extra On Your Principal Balance
Should you be fortunate enough to fall into the category of people who can afford to send a few extra dollars every month here is a strategy that will shave off close to 10 years off of your mortgage term. Using the $165,000 example @ 7.00% your actual payment would be $1097 a month. Now remember $962.50 of that is interest. So that leaves a difference of $134.50. Send in your in January 1st payment of $1097.00 along with your February 1st payment which is only $134.50 because the interest on your February payment hasn't had the 30 days of interest it needs to accrue. On the same or seperate check make sure to notate the extra funds are to be applied to your mortgage principle. This strategy can be applied to car loans, credit card balances, student loans etc.
The following Mortgage Acceleration tactic was something I learned totally by accident when I had refinanced my home. I sent in 3 months worth of payments from leftover cash after closing the loan believing no payments would be due for three months. Since the loan had not began to Amortize (accrue interest), 100% of the proceeds went straight to the principal, because I sent in the payment 30 days before my first mortgage payment was due . In theory and in fact it would have taken me over 2 years worth of mortgage payments to pay off the amount of mortgage principal I had knocked off in less than 30 days !
Any one or a combination of any of these methods will allow you to pay down on your mortgage faster. To assist you in applying these tactics you can use the Home Mortgage Calculator to understand better how to leverage your dollars.
My next article will involve a breakdown of Closing Cost on a Home Loan.
Mortgage Defined
The word mortgage is derived from the two French words "mort" meaning death and "gage" meaning pledge. A pledge to death. So when you negotiate your way into a mortgage you are making a pledge to pay for the rest of your life.
Send in Extra Money...Blah Blah Blah
I have read and researched the articles that tell you to send in extra money every month and create a budget to pay off huge debts in a hurry etc, etc. What if you are not that well disciplined when it comes to budgeting. What if you are the person who is streched to the penny when it comes to paying off bills and other monthly recurring debt? I read about one woman who sent in her tax return and scrimps every extra penny to pay down her mortgage. Personally I would like to leverage my money to the max so that I can still pay my bills enjoy my life reduce the amount of interest I pay every month without paying anything extra.
Understand Amortization
By understanding how the interest on your home loan is calculated every month you can mail your payment in early to decide how much of a savings you aquire on your interest. For example lets say you have home loan amount of $165,000 at a 7.00% interest rate. Most mortgage loans are amortized on a monthly basis. So using this example take $165,000 times the 7.00% interest rate = $11,550 in interest payments on your home for the first year. Divide $11,550 by 12 months = $962.50 of interest per month you pay on your home loan the first year. Now divide $962.50 by 30 days per month and you are paying $32.08 worth of interest per day on your home mortgage loan. If you send in your original loan payment in 10 days before the due date, 10 x $32.08 = $320.80 you saved by not paying one penny extra on your mortgage payment and just paying it 10 days early every month. You just saved yourself $3,208.00 in interest payments in your first year. Don't take my word for it look at the difference on your mortgage statement every month this is the true deciding factor. Make sure your mortgage company applies the payment early so you do not lose the advantage of an early payment.
Pay Extra On Your Principal Balance
Should you be fortunate enough to fall into the category of people who can afford to send a few extra dollars every month here is a strategy that will shave off close to 10 years off of your mortgage term. Using the $165,000 example @ 7.00% your actual payment would be $1097 a month. Now remember $962.50 of that is interest. So that leaves a difference of $134.50. Send in your in January 1st payment of $1097.00 along with your February 1st payment which is only $134.50 because the interest on your February payment hasn't had the 30 days of interest it needs to accrue. On the same or seperate check make sure to notate the extra funds are to be applied to your mortgage principle. This strategy can be applied to car loans, credit card balances, student loans etc.
The following Mortgage Acceleration tactic was something I learned totally by accident when I had refinanced my home. I sent in 3 months worth of payments from leftover cash after closing the loan believing no payments would be due for three months. Since the loan had not began to Amortize (accrue interest), 100% of the proceeds went straight to the principal, because I sent in the payment 30 days before my first mortgage payment was due . In theory and in fact it would have taken me over 2 years worth of mortgage payments to pay off the amount of mortgage principal I had knocked off in less than 30 days !Any one or a combination of any of these methods will allow you to pay down on your mortgage faster. To assist you in applying these tactics you can use the Home Mortgage Calculator to understand better how to leverage your dollars.
My next article will involve a breakdown of Closing Cost on a Home Loan.
