Tricks to Pay Off your Mortgage Early
Hey Folks!
Chris Shank here and today I’m going to prove to you how I’m your Mortgage Advocate by showing you how you can shave hundreds of thousands of dollars off your mortgage. Wanna know what’s cooler? Several of these tricks don’t require you to refinance- how cool is that?
Let’s dive in.
For the sake of these examples, above is a simple four hundred thousand dollar home loan at 6.75% interest. Not counting your taxes and insurance, your monthly payment on that mortgage runs up to just shy of twenty-six hundred dollars. Because of the interest you’re paying, by the end of thirty years, the owner of this mortgage will have paid over nine hundred and thirty thousand dollars for that home.
Now, for comparison, let’s look at that same mortgage, but at 6.25%. Right off the bat, this half percent interest rate reduction saves the homeowner a hair over one hundred and thirty dollars per month. What’s not always immediately obvious, though, is that compared to that 6.75% mortgage, this one will accrue around forty five thousand dollars less interest over thirty years. As a loan officer, these two reasons are usually why people ask me to refinance them.
But wait, it gets better.
Let’s say that this was a refinance, and that you’re now saving one hundred and thirty dollars per month. Well, you’re already used to spending that money on your mortgage, so what happens if you put that money directly against the principal of your new mortgage? If you do this, you’ll end up paying your loan off almost four years earlier than anticipated. In so doing, you’re saving yourself over seventy-five thousand dollars on that mortgage, just compared to pocketing that extra hundred and thirty bucks. These savings jump up to over one hundred and twenty thousand dollars, if you’re taking into account the 6.75% example from earlier.
Look folks, despite what anyone may tell you, refinancing costs money. If you’re lucky, your crazy loan officer uses lender incentives to cover those costs. If you’re not, you’re either paying your refinance with the equity in your home, or cash out of your pocket. Before you think about approving a refinance, make sure your loan officer can prove mathematically that your refinance is worth the expense!
Okay, now let’s say that you don’t want to refinance. That’s fine too! I still have two tricks to share with you. For the sake of clarity, these tricks assume that four hundred thousand dollar mortgage at 6.25%
Check this out- did you know that if you were to pay off your mortgage bi-weekly, instead of monthly, you can shave five and a half years off your mortgage and save yourself over a hundred thousand dollars? You don’t even have to spend any extra money- just take that full monthly amount that you’d usually send to the mortgage company on the first of the month, break it in half, and send one payment in on the first, and another in on the fourteenth. Easy as that!
The second trick I want to share is called the thirteenth payment rule. Simply put, you find out how much you’re paying toward principal and interest each month. Then, make sure to contribute at least that amount extra toward your principal each year. Some people lump this into one large payment at the end of December, while others break that into twelve smaller sums and pay it extra on a monthly basis. However it’s done, by making that extra payment toward principal each month, you’re shaving five and a half years off your mortgage, and, again, saving over one hundred thousand dollars in interest for your efforts.
If you want to get crazy, think of the savings that you could snag yourself if you were to combine the thirteenth payment rule with bi-weekly payments? Pretty cool, huh?
Bottom line is this – if you want to save money on your mortgage, the only person keeping you from doing so is, well, you. That said, if you want to maximize the savings on your mortgage, it may be worth seeing if a refinance is worth it for you. Be careful though, because any loan officer with two brain cells to rub together can make a refinance sound like a good idea. Be certain to make your loan officer prove to you how a refinance can work, and then take it to your trusted Mortgage Advocate to give you a nice and healthy second opinion!