April 17, 2017
Once the paperwork is signed, sealed and delivered the excitement subsides and the reality comes rushing in. You own a home! Right on the heels of that heady thought may come another – you have made a major monthly financial commitment!
Rest assured, all the research confirms you have made a sound financial investment in your future, but that doesn’t mean you shouldn’t look for ways to minimize that expense.
Especially in the first 2-3 years of paying a mortgage there is an opportunity to reduce the total interest you will pay. These sneaky little secrets could save you many thousands of dollars in the long run if you apply them to your repayment schedule. The best part is, you don’t have to suddenly receive a substantial inheritance or huge lump sum of money to take advantage of these savings. Small and steady amounts like those described here can make a huge difference!
Secret #1 – Whatever the amount of your monthly payment, round UP to the next level and request that additional amount be credited directly as a principle payment. The larger the amount applied, the lower interest you pay each month on the remaining principle.
EXAMPLE: Your regular payment is $2700.00 per month. Pay $3000 each month, with the additional $300.00 going directly toward reducing the principle.
Secret #2 – The mortgage company will accept more than one payment in a month, as long as the total due each month is paid by the due date. Arrange to pay your mortgage every two weeks instead of once per month. By paying this way, you both lower the principle faster and lower the total interest you will pay over the life of the loan. Setting this up can be a little trickier, but well worth the effort to arrange. The main thing is to pay every two weeks, not twice a month!
EXAMPLE: $2700.00 divided by 2= $1350.00 every two weeks. You pay $35,100.00 per year instead of $32,400.00. That’s an additional $2700.00 per year, or one full extra month’s payment annually. You will hardly feel the difference in your budget, but your financial gain will be significant over the life of the loan.
Exactly how much you will save will be dependent on several factors, such as your principle loan amount, interest rate, if you have a fixed or adjustable rate mortgage and how much extra you pay each month. Even small amounts applied directly to the principle save you on the overall interest you will eventually repay and can add up to very large sums over the full loan term.
WHY THIS WORKS: Your home mortgage is an amortized loan which means interest is paid only on the existing principle amount still owing. Every penny that lowers the principle also lowers the total amount of interest you will need to repay, which can save you many thousands of dollars!
Contact your local market specialist for even more fascinating ways to make your home ownership journey the best trip of a lifetime!