Pay Off Your Mortgage Five Years Early And Save Over $50,000!
As a former mortgage banker I learned that the average home buyer will pay back double, or even triple the amount he or she borrows over the course of a 30 year loan. The amount paid back depends on the interest rate of the loan. However, think about that: You borrow $300,000 and end up paying back $600,000 to $900,000. No wonder the banking business is so lucrative.
Below is a simple way you can pay off your loan 5 years early using approximately the same monthly payment, and saving you thousands of dollars in the process.
Make Biweekly Payments Instead of Paying Once a Month
Making biweekly payments on your mortgage will cut your interest payments and shorten the term of your loan. Biweekly payments can be set up as an automatic debit from your account: You can request that your mortgage lender debit your account every two weeks, and collect half of your required monthly payment.
To see how much this could potentially save you, let's run through the example below. We'll use a 30-year fixed-rate loan of $300,000 with an interest rate of 5%. The mortgage start date is January 2014.
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Monthly Payments | Bi-Weekly Payments |
| Loan Amount: | $300,000 | $300,000 |
| Payment Amount (5% interest): | $1,610.46 (monthly) | $805.23 (bi-weekly) |
| Total Interest Paid: | $279,767.35 | $228,232.48 |
| Payoff Date: | December 2043 | March 2039 |
End result: By making biweekly payments not only will you pay off your home four years and nine months earlier, but you save $51,534 in interest payments! What would you do with an extra $51,534?
Why does this work?
While there are only 12 months per year, there are 26 two-week periods. This means you are making 13 monthly payments per year instead of 12. In today's market, this will save you tens of thousands of dollars and will reduce the term of a 30-year loan to approximately 25 years.
If you don’t want to make biweekly payments, in theory you can simply make one extra mortgage payment every year. However, the problem with this is most people do not have the discipline to do so, and that extra payment will usually be around Christmas. Paying bi-weekly gives you the discipline needed to follow through.
The other option (instead of biweekly payments) would be to pay a little extra each month. In this case that little extra would be adding $134 each month to the monthly payment $1610. The $134 extra will add up to one extra payment per year and have the same end result as mentioned above.
If you are a home buyer or seller please visit www.BargainAgents.com to save thousands in fees.
By Tony Dosanjh
415-290-6647
Founder/CEO Bargain Agents Inc.
