The reason for the seemingly endless duration of a mortgage note is that a mortgage payment is much more about interest on the loan than it is about the loan amount, or principal.
Until the final years of a mortgage, most of your monthly payment to the lender goes to finance the interest payments on the principal amount, rather than pay down that principal. A mortgage of $100,000 principal with an 8% interest rate, if the note is 30 years long and all payments are made on time, will cost you about $300,000.
But there is a way to save both money and stressful time on your mortgage in the long run: pay it off early.
In a mortgage contract, interest accrues to the outstanding principal balance with every passing day. Therefore, the faster you pay down that principal, the less total money you need to pay in the long run.
It is because of this reason that many people who can afford to do so opt for a 15 year mortgage instead of the standard 30 year. Although their monthly payments, given the same interest rate and loan amount, are higher with the 15 year, they realize that in the long run they save a lot of money because the principal is paid down twice as fast.
There is a way, however, to pay off a mortgage even sooner than within 15 years, and thus save yourself even more money in the long run.
One method that some homeowners use is the bi-monthly payment plan. With this voluntary, but sometimes lender-facilitated, payment plan, one-half of a months mortgage payment is made every two weeks. Not only does this come out to an additional months payment per year, the accretion of interest is sliced in half every month by the timeliness of the payments. This results in a 15-year mortgage note being paid off in about 11 years and a 30-year mortgage note being paid off in about 22 years.
But, it is possible to pay off a mortgage even sooner--in as little as eight years. (Remember, the faster the mortgage principal is paid off, the more money thats saved.) The way to do this is to use whats called a Money Merge account. With a Money Merge account, your mortgage account doubles as your checking account--so, your paychecks automagically go toward paying down your mortgage principal.
For example, most people are happy with having most of their money in a checking or saving account where they get little return. In this case, the bank is the one taking advantage of the use of your money.
Another clear example is a home mortgage. In a regular 30 year mortgage, it's not until the 20 years and 2 months mark that the principal portion of the payment equals the interest portion.
If we take into consideration that the average American stays in their home for 5 to 7 years, they hardly make a dent in the principal of their home mortgage. In other words, the structure of the mortgage greatly favors banks because almost all of your initial monthly payments go toward paying the interest portion.
For over 20 years, homeowners in Australia, the U.K. and Canada have used mortgage accelerator programs to pay off their mortgages in less than 15 years saving an average of $150,000 on their home mortgages. The good news is that this type of programs is now available to homeowners in the U.S.
A mortgage accelerator works without having to make any additional payments toward the mortgage. It works in the following way:
1.At the beginning of each month, a software tells you the right amount to pay toward your first mortgage to make sure you are paying as little interest as possible. The funds for this payment come from an advance line of credit (HELOC.) By doing so, the debt in your mortgage is reduced an you move further down the amortization schedule.
2.You deposit your income in the HELOC reducing the balance on the HELOC. By doing so, you have your money working against your debt in the HELOC.
3.You charge your daily expenses on a credit card to allow your money sit in the HELOC for as long of a time as possible.
4.At the end of the month, you pay off the balance in your credit card with money from the HELOC and therefore avoiding interest charges from your credit card company.
By doing a few changes in your financial habits, you can start making the bank's money work for you and no the other way around. Using other people's money (the bank's money) is one of the surest and fastest ways to become financially independent.
Even though it may take a little to get use to the changes, you can think of the alternative; After all, how much time and effort would it take you to make the money you would save if you could pay off your mortgage in half the time?
Both Ben Needles & Igor Buces are contributors for EditorialToday. The above articles have been edited for relevancy and timeliness. All write-ups, reviews, tips and guides published by EditorialToday.com and its partners or affiliates are for informational purposes only. They should not be used for any legal or any other type of advice. We do not endorse any author, contributor, writer or article posted by our team.
Ben Needles has sinced written about articles on various topics from Business Credit Cards, Anger Control and Business Credit Cards. About the Author (text)To learn more about how to set up a Money Merge account, visit leading representative John Navata at Financial Destination, Inc. (FDI), at. Ben Needles's top article generates over 550000 views. to your Favourites.
Igor Buces has sinced written about articles on various topics from Finances, Business Loans and Finances. To learn more about how you can use a to pay off your home in 10-15 years and save an average of $150,000 go to our. Igor Buces's top article generates over 246000 views. to your Favourites.