How to Pay a Home Loan Off QuickerThe biggest expense of a home mortgage is interest. Let's learn how to pay a home loan off quicker. Depending upon your interest rate, you could end up paying much more than the original price of your home by the time your mortgage is paid in full. I will show you how we literally...
...cut years off the duration of our mortgage, which we'll end up saving tens of thousands of dollars-it's very simple.
The following two steps reveals how we are paying our mortgage off years in advance without paying one extra dime in house payments:
Meaning, we would be making less than ½ of a house payment every other week instead of a full house payment once a month. To figure a Bi-weekly payment, take the original monthly payment amount and multiply it by 12 (months), then divide that number by 26 (weeks).
Over a year's time, the total amount paid in 26 bi-weekly payments will be the same as making 12 monthly payments.
Our home loan will be paid off in 22 years for a 30 year mortgage. And in 12 years, if we would have taken out a 15 year mortgage and without paying a dime extra.
For example, I keyed in the following figures on a web-site calculator to give you an example.
When you make monthly payments on a 30 year home loan:
Principal Home Loan Balance: $ 100,000.00
Annual Interest Rate: 7.25%
Amortization Length: 30 Yrs.
Monthly Principal Payment: $ 682.18 (without Taxes & Insurance)
Annual Pre-Payment: $ 000.00
Total Interest Paid: $ 145,583.46
Total Amount Paid over 30 yrs $ 245,584.80 = 360 Payments
_____________________________________________ Let's Compare that to Bi-Weekley payments:
Principal Loan Balance: $ 100,000.00
Annual Interest Rate: 7.25%
Amortization Length: 23.67 Yrs. (Note is 6.33 Yrs shorter)
Bi-Weekly Principal Payment: $ 341.09 (Without Taxes & Insurance)
Annual Pre-Payment: $ 000.00
Total Interest Paid: $ 109,346.23
Total Paid over 23.67 years: $ 209,346.23 = 614 Payments
Now, subtract the total of the BI-weekly payments from the total of the monthly payments:
Interest Savings: $ 36,237.23, which equals to a
Monthly Savings of $ 100.66 over the life of your home loan.
Let's look at how to come up with a Bi-Weekly Payment Amount
Monthly P&I Payment... $ 682.18
Multiplied by 12 months... x 12
Total Paid for Year... = 8,186.16
Now, divide this yearly amount by 26 ÷ 26
Your Bi-Weekley Payment = $ 314.85 Whoa..., wait just one minute...
Look at the difference between the amount of the Bi-Weekly payment that I came up with ($ 314.85) and the Bi-Weekly payment that the web calculator figured for you ($ 341.09).
There is a difference of $ 26.24 in the Bi-Weekly payment!
The particular web calculator that I used to get my figures, and I won't give any names, must charge extra fees or points to do a Bi-Weekly payment system.
Now, let's add that up the difference between the web-calculator's and my figures.
$ 26.24 Payment Difference
x 614 Number of total payments made
$ 16,111.36 Now, that is big difference!
Our lender did not charge extra points or fees...
...their only requirement was that we had our payments automatically debited from our checking account, which is what we wanted to do anyway.
Therefore, our Bi-Weekly Payment Plan worked out great for everyone!
If you choose to set up a Bi-Weekly Payment Plan, it is "Wise" to consider setting up an automatic draft. There are great advantages to doing that.
Your payment has to be made by a certain date anyway and it could cost more to mail a payment than a draft. Just make sure that it is set up properly from the start and that you keep track of the withdrawals from your account.
By making bi-weekly payments alone, we cut 8 years off the term of our mortgage...
...and saved over $115,000.00in payments!!
______________________________________________
Q: How does this work to get the mortgage off our backs sooner?
A: Well it's very simple, we are making payments more frequently than the interest rate is amortized. The result is, that we are paying even more principal and less interest as each payment is made, than making monthly payments, thereby paying down our loan at a much faster rate.
There are many different types of home loans, in order to find out which one is right for you a little research will be required on your part. Wise-Homeloans.com may be able to give you the answers you need to help with your decision. Go to: www.wise-homeloans.com
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of all, we obtained a mortgage without an early payoff penalty.
