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CORY T. NEU
BROKER, GRI, e-PRO
Want To Pay Your Mortgage Off Faster?
Many people would love to pay their mortgage off faster than the amortization schedule. There are many ways to step up your mortgage, and most can be done without the assistance of your lender or a third party who may be charging you extra for their services.
If you currently have a mortgage, you most certainly have received solicitations in the mail to sign up for such services. They are called many things like "Equity Building Program" or "Pay Off Escalator Program." They pretty much all have the same idea that instead of paying 12 monthly payments, you would pay bi-weekly payments of half your mortgage payment instead. Some of these services charge from $100 up to almost $400 per year. Telling you that you will shave years and thousands of dollars off of your mortgage makes these programs sound very good to the consumer. What they don't tell you is that you can do the very same thing yourself for free. Throw in the fee that you will not be paying them, and it's even better than their service.
To learn how, you will need to understand this service; so let's break it down. Let us assume that you have a loan for $150,000 and that you will be paying it off over 30 years at 6.5% interest. This would give you a principle and interest payment of $948.10 monthly meaning 12 times a year. With their program you would make a half payment every two weeks of $474.05. Follow me so far? Ok, consider that there are 52 weeks in a year. That makes 26 bi-weekly payments, or 13 full payments per year. So while you are paying them every two weeks, they promise to make your monthly payment, and you end up making an extra payment at the end every year. Understand that you are trusting them to do this on your behalf, and if they don't make your payment, your Lender won't care what services you are using.
As your Realtor, I would advise you not to sign up for any of these services, because there is no guarantee that these companies will make your monthly payments on time like they promise, and you can do better for Free! Free sounds good doesn't it? Here is how. The goal is to make one extra principle and interest payment a year. Let's take the same example of the $150,000 loan above. Take the principle and interest portion of the payment ($948.10), and divide it by 12. Then add that back to the monthly payment to get a new payment of $1,028 rounded up to the nearest dollar. Making this payment would shave almost 6 years off this mortgage, and save over $43,000 over the life of this mortgage. Not bad! See the chart below to see how this strategy starts to build equity over time.
|Compare The Balances!|
|30 Year $150,000 Loan at 6.5%, $948.10 Payment|
|5 Year Balance||$140,417||$134,770|
|10 Year Balance||$127,164||$113,709|
|15 Year Balance||$108,839||$84,586|
|20 Year Balance||$83,498||$44,314|
|24 Yr./1 Mo. Balance||$55,113||$231|
|Total Savings: $43,197, Almost 6 Years Early!!|
If you are interested in setting up this scenario for yourself, and would like my help, contact me at Cory@NeuRealty.com. Let me know your loan balance, interest rate & current principle and interest payment. I can then create an amortization chart to show you the benefits specific to your mortgage.
If you don't think you have the extra money to throw at your mortgage, think about this. Many people have IRA's that are investing in residential real estate loans like yours. Before you throw the maximum at your IRA, consider investing in your own mortgage instead.
|© Copyrite, All Right Reserved, Cory T. Neu, Broker, GRI, e-Pro, Cheryl Neu Real Estate, February 4th, 2005|