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One Simple Way To Cut Thousands of Dollars And Years Off Your Mortgage

| July 27, 2021
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By Kristi De Rycke, Registered Assistant

Grab a cup of coffee as we are heading into the dry material of mortgages.  The proverbial ball and chain that you signed for 30 years.  Actually this step is really easy!  You just need to commit to 1 extra payment a year.  Ok so if coming up with this money is not so easy check out the article Found Money for some ideas on how to do this.

 If you can find a way to squeak out one extra payment a year, the payoff is huge!  Go to www.daverramsey.com/mortgage -payoff-calculator or any number of mortgage payoff early calculators.  I typed in a $100,000 loan for 30 years at 4% starting the first of this year.  The monthly payment was $477.  Here are the results:

Method

Total Cost of House

Pay Off Date

No Extra Payments

$171,868

December 2048

1 Extra Payment Yearly

$160,565

December 2044

Now look at a $150,000 loan with a $716 monthly payment at 4%. 

Method

Total Cost of House

Pay Off Date

No Extra Payments

$257,805

December 2048

1 Extra Payment Yearly

$241,488

December 2044


You can burn the mortgage bill 4 years earlier!  Go into one of these calculators and put your mortgage amount and interest rate in to see what it could do for you. 

You can do 1 payment extra a year in different ways.  Know that your mortgage company will not be motivated to have you save money on your mortgage as that money would have gone into their pockets so be persistent. 

You can just do a 1x extra payment a year matched with a bonus, holiday money or when you have it saved.  You can take your mortgage payment amount and divide it by 26 which is the number of paychecks per year or 12 if you are paid monthly.  Then, you can have your bank automatically move that amount of money into a specific savings or checking account.  Then on December 31st, you write the extra mortgage payment.  Be certain if you are doing one check to be sure to label it principal and write a note that you want it all applied to the principal.  The mortgage company may try to apply it to the interest which won’t provide the savings listed above.  Be firm as they may try to make it apply to the interest and you know you want it applied to the principal.

Many companies will allow you to do biweekly payments.  This means you pay the standard payments but every 2 weeks instead of 1x monthly.  That means instead of 12 payments, you would have 13 but it would match with paychecks if you are paid biweekly.  Make absolutely sure that if you are doing it this way that you are not paying additional fees which would decrease the impact your extra payment will have.  From my recent searches, many companies will try to talk you into a biweekly payment service.  This will charge you higher fees and charge you if you miss the extra payment.   If you are unsure of the plan, go back to the first option of writing the extra check 1x yearly or half of it every 6 months.  This way you can write on the check for principal only and make a copy of the check prior to sending.  This will work if online banking as well.

Now the hard part…….What will you do with that extra money every month when you no longer have to write a check to the mortgage company?   Hmmmm so many choices.

By Greg Johnson

What an amazing concept and one that would work for lots of things not just your mortgage.  Dave Ramsey talks about the snowball concept of debt reduction in his program and if you stay committed to the plan it will pay you serious dividends.  Commit to your goal and find a way to make the extra payment.  I do encourage you to find out how your extra payments will be applied because not all mortgages are equal so do some homework before applying payment and then set sail. 

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