Tuesday, January 15, 2008

How to Payoff Your Mortgage Fast

Introduction

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

Instructions

Difficulty: Easy

Things You'll Need

  • calculator
  • current mortgage info
  • calandar

Steps

1

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.
2

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.
3

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!
4

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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