Title:
How to Save
Thousands of Dollars on Your Mortgage!
Word Count:
695
Summary:
The dream of
owning a home is becoming very allusive these days. Although everyone would
like to have a home that is paid for free and clear, many people are forced to
assume mortgages that will be paid over 25 or 30 years into the future.
Everyone is constrained to a certain degree by their budget. Yet there is a way
to pay off the existing mortgage on your home quicker and save money in the
process.
Keywords:
mortage,home
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mortage,ways to save money,tip how to save money,save
Article Body:
The dream of
owning a home is becoming very allusive these days. Although everyone would
like to have a home that is paid for free and clear, many people are forced to
assume mortgages that will be paid over 25 or 30 years into the future.
Everyone is constrained to a certain degree by their budget. Yet there is a way
to pay off the existing mortgage on your home quicker and save money in the
process.
Almost all mortgages have built into them an Accelerated Payment Clause. This
allows the borrower to pay more than the minimum amount of the monthly mortgage
payment.
To do this you simply remit more to the lender than the usual mortgage payment
every month. The benefit to this is that every extra dollar paid against the
mortgage will lower the outstanding balance of the mortgage. This increases the
equity in your home faster over time. Also, by lowering your outstanding
balance, you will save on interest charges.
Here is a good example based on the scenario of an average family.
If you are an average family of four making $50,000 a year, let us assume that
you are saving annually at the same rate as most Americans. This rate of
savings as reported by our government is about 4% of your income every year.
This would mean that you are putting $2000.00 in the bank every year for future
purposes. This comes out to around $167.00 a month.
Right now you are probably receiving less than 1% Annual Percentage Rate (APR)
on your passbook savings.
Why not take $100.00 of this money that you would normally save and pay down
the mortgage on your home ahead of time? The following example shows why this
is in your best interest.
If you take out a mortgage on a house for $200,000 at a 6% fixed rate, and the
contract calls for repayment in monthly installments over 30 years, your
monthly mortgage payment would be $1,210.56.
If you paid an extra $100.00 dollars per month toward the amortization of your
mortgage, you would add $1,200.00 to the equity in your home every year.
In this scenario, the total amount paid to buy your home over the life of the
mortgage would be $435,798.89. When you add $100.00 to your mortgage payment
every month you would save $46,360.13 in interest charges over the life of the
mortgage. You would also be able to retire your mortgage earlier.
You would be able to trim 38 monthly payments off your repayment of the
mortgage. So the mortgage would be paid off 3 years and 2 months sooner if you
use this repayment method.
In short, what this strategy does is shift your money from passbook savings
only ($2,000.00 per year), to paying $1,200.00 on your mortgage, and saving
$800.00 directly into your bank account each year.
To sum up the benefits of using this method, the borrower in the example above
saved $46,360.13 in interest on their loan, and accumulated $21,923.85 in
passbook savings ( $67.00 per month X 1% APR X 322 months ). This equals
$68,283.98 in accumulated savings over 26 years and 10 months (This is the
actual time it would take to pay off the original 30 year mortgage).
If the family would have put all of their money ($167.00 per month) in a
passbook savings account only, they would have accumulated $54,646.35 over the
same period of time.
So this family would have actually saved $13,637.63 more by using this
accelerated payment method. And they would have also paid off their mortgage 3
years and 2 months earlier than normal.
This method can be used in any situation where the mortgage has an Accelerated
Payment Clause built into it. It will work best if you are consistent with the
amount that you pay on your mortgage every month. Any change in the amount of
monthly repayment of the mortgage will affect the amount that you will actually
save.
Check with your banker to find out if your mortgage allows for Accelerated
Payments. Then you can use this strategy to save a lot of money on your
mortgage and own your home sooner.
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