How Paying More On Your Mortgage Can Save You Money

It’s the American dream to own your own home and dreamers will go to any lengths to accomplish this even if it means borrowing thousands of dollars to be paid back over a 30 year period. Committing to stick to 360 payments, especially since most of the money is going to interest in the beginning, is a huge undertake.

Once you have paid all the interest you owe at the end of a 30 year period, you have paid approximately twice what the initial cost of the home was. Interest is working against you 24/7/365. Would you not be happy if someone told you that you can pay your debt off much sooner, and shave away several years and a lot of money from what you owe?

You can. With a little self-discipline and maybe a quick review of your budget, you can accomplish just that. It’s no secret that paying the mortgage twice a month, instead of only once will save you thousands and pay off your debt years sooner. This plan is also known as the bi-weekly mortgage plan.

For example: Let’s say you paid $80,000 for your home and got a 7% loan for 30 years. If you could just divide your payment in half, and pay every two weeks, you would save approximately $25,000 in interest and pay your loan off in 8 years less.

Not a bad deal after all, for just a little extra work. You save more if your loan and interest are higher. This process enables you to pay more toward the principal and less toward interest. Both principal and interest pay off quicker with the extra payment.

Can you obtain the same result by assuming a shorter mortgage term? You certainly can. But many people cannot qualify for a shorter term mortgage because of the higher payment. With a bi-weekly plan you can still save and qualify, thus keeping you in control.

For a fee ranging between $100 and $400, you can hire one of many companies that can arrange it for you. You can even find some companies that will do it for free and will just charge you for each transaction.

Is this something you can do on your own? You certainly can, provided that you take the time to read the fine print on your contract and discuss it with your lender. You need to first insure that you won’t have to pay a pre-payment penalty if you pay the loan off too quickly.
Some lenders also attach a fee every time you make the extra payment.

Banks can also provide you with a bi-weekly calculator to let you determine how much you would save and how soon you would actually own your home. One of the advantages of paying the loan off early is that you will also save on private mortgage insurance (PMI).

By paying bi-weekly, you’re actually paying one extra payment a year and that makes the difference. You can accomplish the same thing by making an extra payment whenever you can of any amount. Be sure that the extra money is going toward principal and not interest.

Most financial institutions are happy to help you with saving money on your mortgage but it’s up to you to get the financial ball rolling. By just investing the equivalent of dinner and a movie once a month, your family can save years paying off a loan and also save thousands of dollars.


About the author

Sherry Fields Sherry Fields has been working in real estate since 2002. Working with the development team for the Hilton Garden Inn gave her strategic information on the commercial real estate market in Missoula. Broadening her scope she moved into the residential market and earned the designation SFR in short sales and foreclosures. Currently affiliated with Prudential Montana Real Estate, she works with both buyers and sellers "building relationships so you can buy & sell with confidence". Sherry Fields has recently earned the CREN designation - Certified Real Estate Negotiator. While price is a large part of negotiation - it is also about timing everything from the closing date to inspections, appraisals, home insurance - and it is about negotiating items that can show up in home inspections to achieve a mutually acceptable outcome.

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