Mortgage is a necessary evil. It takes a toll on your finances and lifestyle but is ultimately a means to owning that dream home. Whenever you are enlisting in a mortgage plan, one of the factors people are quick to consider is the amount of interest they will pay. This is the reason why many people use online calculators to find ways to beat the overall amount of interest they will pay. It goes without saying that the longer your mortgage repayment period, the more interest you will pay. So how do you cut down your interest? Well, the answer is simple. Pay more. This may not make sense at the moment but this article will address how paying up your mortgage faster will significantly reduce the amount of interest you pay. There are two methods you can use to save money.
1. Added Monthly Payments
Adding an extra amount to your monthly payment helps you pay up faster and save significantly. This is a DIYapproach and you do not need to have a financial expert to show you how to go about. Calculate the overall amount you are supposed to pay per year. Divide this amount by 12. This gives you an idea of how much you are supposed to pay per month. If you had a loan of $200,000 which was to be paid for 30 years at an interest rate of 6%, the overall amount of interest you will have paid for your home over the 30 years is $231,677. That is more than double what you have borrowed. However, if you sacrifice just $100 a month and add this to your monthly payment, then the number of years you take to pay off the loan drastically falls to 24 years and 7 months. The total interest you will pay is $182,538. This means that you will have shaved off 5 years, 5 months and saved $49,139.
2. Bi-Weekly Payments
Another clever way to shave off your mortgage would be by having bi-weekly payments as opposed to monthly ones. This little trick does not even require you to add more. Essentially a year has 52weeks, this means that if you are to pay every two weeks for your mortgage, you are paying for 26 weeks a year. If for example you are paying $2,000 a month the total amount you pay per year is $24,000. If you divide your payment into bi-weekly payments the amount becomes $1,000×26 weeks giving you a total of $26,000. You have paid $2,000 more every year without even noticing. Assuming that your interest rate remains the same, you will be able to shave off a couple of years off your repayment period and in the process save a lot of money.
Before embarking on any fast repayment plan, it is always advisable to let your bank apply the extra amount of money to the principal amount as opposed to the interest. This is because the higher your principal amount, the lower the interest rate you pay.
About Author : Subodh Jain writes for Howtogetrid.organd is owner of several other blogs related to how to do things, random reviews and more.
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