Tuesday, January 15, 2008

How to Payoff Your Mortgage Fast


Ever wonder how you can pay off your home quicker? Here is the simple math...


Difficulty: Easy

Things You'll Need

  • calculator
  • current mortgage info
  • calandar



Step One

How much do you pay monthly?
It is easy to just send the monthly minimum payment each month. However, with a little bit of planning you can cut the amount of interest you pay and how long it takes for you to pay off your home.

Step Two

By accelerating the payment structure on your loan, the life of the loan is reduced:

* In a normal 30 year fixed rate loan situation, your monthly payment is applied towards principle and interest. It is amortized over the course of 30 years.
* So any money above and beyond your normal payment is applied solely towards the principle of the loan.
* By reducing the principle of the loan, you are reducing the total amount of interest that must be paid, and that equates to an early loan payoff.

Step Three

All you have to do is make 1 extra monthly house payment a year. Do that and you reduce the life of your fixed rate loan by about 7 years!

Step Four

Click to enlarge

Budget that extra payment

You have 3 good ways to make that extra monthly mortgage payment:

* Bi-Weekly Payments: Normally, you make your house payment once a month, or 12 times a year. But with a Bi-Weekly payment structure, you take your normal house payment, and divide it by two. This is the amount paid every two weeks, instead of once a month. By doing this, you basically make 1 extra (monthly) payment a year.

* Double Payments: Double Payments simply means an extra house payment. Once a year, you write out a check for twice the amount. So, if your house payment is normally $1,000 a month, then on December 1st, for example, you’d write out a check for $2,000. This is the same as the Bi-Weekly Payments option.

* 1/12 increase in payment: Increase your monthly mortgage payment by 1/12, and you accomplish the same thing. Let’s say your house payment is normally $1000. 1/12 of your house payment is $83. So, you start making payments for $1,083. Guess what? Your loan is paid off in about 23 years instead of 30.

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