One Simple Step Can Save You A Lot Of Money On Your Mortgage

Written By: Reginald H. Hipp on April 21, 2010 No Comment

There is a simple trick that you can use to save thousands of dollars on your mortgage, without making any adjustment in your monthly payment. Not many people realize how effortless this can be.

A two week pay check is the rule for most people. If you are like most people, as soon as you are first paid, you spend a lot because the cash is available, but cash gets tight towards the end of this two week period. And yet, we basically spend the same amount every week.

We usually splurge a bit more when we have the cash in hand, and then have to penny pinch when it is pretty much gone. The solution to this problem is to budget your funds in general, but budgeting the mortgage payment, the biggest single expense for most people is sure to help the problem.

This is an easy solution that will save the home owner a great deal of money, and have the additional benefit of paying off the mortgage earlier. For an $80,000 mortgage that has a 30 year term and a 7% interest rate, this easy trick can save in excess of $25,000.

How to accomplish this this off- budget your mortgage payment out of each pay packet instead of the last paycheck of the month. (Most people pay their mortgage at the end of the month, so it gets to the bank on the due date.).

There is no real mystery to this: as you pay your mortgage earlier and earlier, you bring forward the eventual due date of the mortgage. In this way, you pay less interest on the mortgage in total.

Because of the way mortgage interest is calculated and paid down, most of your initial mortgage payments are allocated to pay interest, and only a small part goes to principal. Since you pay so little of the principal, the interest keeps growing. But if you ncrease the frequency of the payments, the interest is paid down earlier, and then your payment starts to reduce your principal. The net result is that the principal is paid down ahead of term!

Some banks have special forms for this, but even ifthey don’t, you can just send in the extra payment; just be sure to include your account number. You might even consider making extra copies of your mortgage payment coupons and just adjusting the date on them.

As you can observe, without affecting the total impact on your monthly expenses, you have found the magic recipe for saving tons of interest and paying your home loan down ahead of time.

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