Most people think when you get a mortgage you’re stuck with it for 30 years. What they don’t realize is that using a couple of easy and painless ways to make some extra principal payments can cut years off the life of your mortgage and save thousands of dollars in needless interest costs.Here are a few easy strategies you can use:
Round Up To the Nearest Hundred.
This is an easy strategy to take advantage of, and the results are dramatic!
Let’s say you have a mortgage of $100,000 over 30 years at 8% interest. The monthly payments would be about $734 a month.
Now, let’s see what would happen if you rounded that payment to the next $100 by increasing your payment by $66 extra each month.
By paying $800 a month you’ll shorten the length of your mortgage by 7½ years. Just this one simple strategy will save you over $48,000 in interest payments over the life of your mortgage!
Use Your Income Tax Refund to Make a One-Time Pre-Payment.
Let’s say you have that same $100,000 mortgage, and you have a $1,000 tax refund this year. (Very possible with your new homeowner deductions.)
If you take that $1,000 and apply it to your mortgage, you’ll save over $8,600 and shorten your mortgage by one year and one month! Not bad for a simple one-time pre-payment.
Start Out With a 15-Year Mortgage.
One of the best things you can do – if you can afford it – is to start out with a 15-year mortgage instead of 30. It’s actually not that much more expensive, and the interest you save is incredible.
With the same $100,000 mortgage at 8% over 15 years, your payment would be about $200 more ($955) and you’d be paying $72,017 in interest over the life of your mortgage instead of $164,160!
By rounding up, using your tax refund, and taking a shorter mortgage, you can save thousands and be free of your mortgage years sooner. That’s worth considering.
