Tuesday, January 15, 2008

How to Save Big Bucks on Your Mortgage


A home mortgage is the biggest ongoing debt most people will ever face. One of the easiest and most powerful money strategies you can employ is to pay off your mortgage early. It's a painless way to save thousands of dollars.


Difficulty: Moderate



Step One

Look at the breakdown of your mortgage payment. Your monthly mortgage statement shows two elements: the principal payment, which is the portion of your debt that you're actually paying, and interest on the principal.

Step Two

Pay off your mortgage early just by adding more to your monthly payment. Calculate whatever you can afford, and simply add that each month.

Step Three

Make the equivalent of an extra payment each year. This requires simply adding an additional 1/12 of your payment to each mortgage check you write. Indicate on your mortgage payment slip that you're paying additional principal. For example, by paying an extra $50 a month on a 30-year, $100,000 mortgage at 6 percent interest, you slice six years off the life of the mortgage, and you save almost $25,000 in interest.

Step Four

Sending in biweekly payments, rather than one monthly check, is another strategy for more quickly reducing your debt, if your lender allows it. Signing up for an official biweekly mortgage may not be worth the fee, however.

Step Five

Renegotiate your mortgage rate by refinancing it if interest rates drop considerably. Typically it's not worth doing unless you can secure a rate at least 1 percent lower. See How to Refinance Your Home.

Step Six

Consider variable interest or shorter term loans. A 30-year fixed interest loan is not your only choice. Many lenders offer variable loans, or loans that have a short-term "teaser rate" that keeps the interest low for a set period. If you're thinking of selling soon, there are also interest-only loans for different periods, as well as loans that are fixed for 5 or 10 years, then go variable.

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