Ahhh..the start of the new year! It is time to reconsider your financial situation, take stock of things and make some decisions to improve your position. One option that can have some big payoffs? Why not add a little to your mortgage payment each month? With virtually no pain, the result can be significant savings in interest over the life of your mortgage and a reduction in the amount of time before you own your home mortgage-free.
Here’s how it works..... if you overpay your mortgage and direct all of your extra payments towards the principal, not only will the principal amount be reduced, so will the amount of interest you’ll have to pay over the term of the mortgage. That’s because interest is calculated based on the outstanding amount you owe. The less you owe, the lower the interest charge. The longer you plan on staying in your home, the bigger the return on investment by overpaying your mortgage each month.
To illustrate, let’s say you just started a 30-year fixed-rate mortgage of $300,000 at a 4% rate. By the end of the life of the mortgage, you’ll have paid $215,608.52 towards interest. But if you were able to pay an additional $300 each month, the paydown of principal would result in lower interest charges each month and at the end of the 30 year mortgage life, you will have paid only $148,215.00 in interest charges. That’s a savings of $67,393.52! But that’s not all! By paying that extra $300/month you would pay off your home 8 years and 5 months sooner! Imagine….no more mortgage payments and all the equity is yours!
Whether you can add $100 per month of $300 per month or perhaps even a little more, why not give it a try? Once you’ve built it into your monthly plan you’ll hardly feel it, and I guarantee you’ll have some fun watching your balance go down!