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Every Cent Counts
by Lee Masterson
It
stands to reason that the easiest way to pay off any debt
is to put more money toward the amount you still owe. The
more you pay, the faster the debt will clear. Right?
Right. The problem there is - not many people have huge
amounts of left-over available cash to pour into a
mortgage each month. Would it make a difference, though,
to simply pay a few extra dollars a month on top of the
regular payment?
Can your spare change really make a difference to your
mortgage? Can spending a couple of minutes going over
your original mortgage contract make a difference?
Believe it or not - every cent counts.
Before we begin, we need a base loan amount to use as an
example.
Let's say you have a 30-year mortgage of $120,000 with an
interest rate of 7.5%, your minimum monthly payment is: $839.06
per month.
If you paid precisely that amount each month, it would
take exactly 360 months (or exactly 30 years) to repay
your mortgage. The scary part is NOT the
amount of time it takes.
What is really scary is that 360 payments at $839.06 per
month = $302,061.60
Now THAT'S scary! It would actually cost you more than
$300,000 and take you 30 years to pay off a $120,000
mortgage!
Let's look at some examples.
Example
One:
What if your bank charges a monthly "account"
fee on TOP of your regular payment? $5 per month does not
sound like a lot of money, but that small change sure
does add up quickly. Paying banking fees and charges can
eat into the amount you could be paying off your mortgage
balance.
$5 per month over the term of a 30 year loan is $1,800.
If you put that $5 onto your mortgage balance instead of
paying it in banking fees, you could potentially cut your
loan term down to 29.3 years and save $4,798
in interest payments.
There are plenty of ways to reduce - or sometimes even
cut out - banking fees without the hassle and expense of
refinancing. More on those in another article.
Example Two:
Your minimum payment is $839.06 every month.
This is what the bank expect you to pay. What would
happen if you rounded up the amount to a nice, even
figure?
Let's say $850 per month. That's only $10.94 per month
extra - that's 0.36 cents per day! Small change, isn't
it?
If you paid that extra small change into your mortgage
each month, you could pay off your mortgage in 28.6
years and save $10,104 in interest
payments.
Ten thousand dollars is NOT small change any longer!!
That's a substantial saving.
Let's combine example one with example two: You choose to
pay an extra $10.94 on each monthly payment. You also
decide to add the $5 per month you save on banking fees
to that payment. Now you're paying $15.94 per month EXTRA
(making a total payment of $855 per month)
You could pay off your mortgage in 28
years and save $14,277 in interest
payments. And we're still talking only petty cash!
Example Three:
What if you rounded your minimum payment up to the
nearest hundred? Instead of paying $839.06 per month, you
pay $900 per month. That's $60.94 more per month than the
minimum payment.
You could see your mortgage paid off in 24
years - that's 6 years off the total
loan term! On top of that, you would save yourself $43,243
in interest payments.
Now we're starting to talk about serious savings...
You can try some of these examples yourself with any good
mortgage calculator. You'll be surprised at how much
petty change can save you. Click Here to go to our Mortgage
Calculator
page.
But these examples still don't seem to be paying off the
mortgage quickly enough, do they? Please
click here to go to the next tip...
Lee
Masterson is a freelance writer from South Australia and
is one of the founders of MortgageLoanHints.com. She has
worked in banking and finance for more than 10 years and
now spends much of her time trying to help people control
and manage their debt. You can find more of Lee's
articles here: http://www.mortgageloanhints.com
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