I am sure you have heard talk of people paying their mortgages off in record time and payed far less interest than you agreed to. Do you think you can do that? I know you can! I am going to share two ways that will help you pay your mortgage off earlier than the 30 years you signed up for.
Idea #1 – Pay a little extra every month
Let’s assume your current mortgage balance is $350.000 and the rate is 4.5% on a thirty (30) year note. If you were to pay the mortgage for the full 30 years without any extra payments you would have paid a total of $638,424.00 according to the Bankrate.com calculator (that is $288,424.00 of interest and the $350,000 in principle).
What would happen if you added just $100.00 extra per month applied directly to the principal? Well the calculation is that you would pay $34,824.00 less in interest and you would shorten the mortgage repayment period by 37 months (3 years and 1 month). That’s right, an extra $100 per month at the start of the loan and you’d save about $35,000.00 in interest payments over the life of the loan.
What would an extra $200.00 per month do to this loan? Well that would save you $61,684.00 in interest over the life of the loan. You would also shorten your mortgage repayment period by 67 months (5 years and 7 months).
The power of compound interest can be offset significantly by making small and consistent payments applied to the principal balance.
Idea #2 – Make an extra principal payment annually
Suppose you made one extra payment to your mortgage per year and had that payment applied to interest, what do you think you’d save? According to the Bankrate.com calculator you would save about $49,000 in interest over the life of the loan and you reduce the loan repayment period by 52 months (4 years and 4 months).
Idea #3 – Let’s be super aggressive and make one extra payment per year while paying an extra $100.00 per month
Okay Super Debt Destroying Hero! So you want to be super aggressive? Let’s make the extra $100.00 monthly payment which will be applied directly to the principal. We will also assume that you will also make an additional full mortgage payment at some point during the year, in addition to the normal monthly payments.
If you were to combine the power between ideas #1 and #2, you would save nearly $73,000.00 in interest payments over the life of the loan, according to the Bankrate.com calculator. This would reduce your repayment period by 80 months (6 years and 8 months).
Now that you have the numbers, what are you waiting for? Go ahead and devise a strategy to kill your mortgage faster and save more money to invest in something else. Maybe another property? Hmm…