Whether you choose to save that extra $954.83 and pay it all in one lump or pay 1/12 of it each month is up to you, but there will be a small savings from interest and mortgage insurance if you pay an extra $79.57 every month as opposed to the full $954.83 at the end of the year. Start brown bagging it, cook at home more, see fewer movies at the theater - find that $20! Seriously, what do you want more: a frothy, calorie-filled cup of creamy, delicious Starbucks coffee with extra whipped cream and a drizzle of liquid chocolate or to pay your mortgage off early? OK, that was a little unfair - Starbucks is hard to compete with, but you get my point. Maybe you’re like most of us and you can’t scrape that kind of dough together, but I’d bet you could find $20 a week, or just $4 every weekday. Coming up with another $954.83 and then some (depending on your taxes, insurance and mortgage insurance) in one big lump isn’t happening. Your dollar isn’t going very far, the cost of food is still high after two years of crop failure back in the early 2010s (in case you were wondering, those crops were hay and corn, respectively) and you don’t forsee a raise in the near future since half your department is still laid off. The problem with mortgage lenders saying things like just one extra payment is that they tend to forget we’re still sort of puttering around trying to decide if we’re still functionally in a recession. Since you’ve not got a prepayment penalty, it doesn’t cost you anything extra to pay a little more, so if you’ve made the decision to pay your mortgage down as fast as you can, an extra payment is the best place to start. I’m sure you heard it at closing and you were probably had a pretty healthy amount of skepticism then, too, but just one extra payment a year can actually cut a significant chunk of time off of your mortgage. Principal and interest parts of mortgage payment on $200,000 30-year fixed rate loan with 4.00% interest rate Just One Extra Payment a Year… Maybe paying a little extra isn’t such a bad idea after all. Unfortunately, that point is roughly 20 years into your mortgage! Because of the way mortgages are structured, you pay more of the interest up front and more principal toward the end of your loan, which makes it hard to get out from under other payment-bulking items like mortgage insurance. If you make all your payments on time, just five years later your principal portion of that same $954.83 P&I payment is up to $351.85 and the interest is down to $602.98.Īnd so it goes, until you’re finally paying more principal than interest in each payment and your mortgage magically starts to shrink right before your eyes. For example, if you’ve just closed a $200,000, 30 year fixed rate mortgage at 4.00 percent interest, the principal and interest portion of the payment will total $954.83, but only $288.16 of that is actually helping to knock down your giant mortgage balance. Year after year, if you pay your payments on time and nothing drastically raises your taxes or insurance, your payment stays basically the same, but the principal you’re paying increases. These parts combine to form what we properly call your mortgage payment, even though it’s a lot more than that. Just as a review, let’s go over the parts of your mortgage, after all, it’s not all just the part we call the “payment.” Your mortgage is made up of several small payments, including a portion of your loan principal, mortgage interest, mortgage insurance, property taxes and mortgage insurance when applicable. Trust me, we’ll make it as painless as paying off a mortgage can be. Oh, I can hear you already, crowing that you can barely affording the mortgage payment you’ve got and insisting that you simply can’t make more payments. Rest tight tonight, we’re going to help you develop a plan for paying off your mortgage early in the simplest way possible - by making more payments. For many people, knowing that they’ve got tens or hundreds of thousands of dollars worth of debt hanging over their heads is enough to ensure some pretty sleepless nights. No one else can take it from you or make any decisions regarding it…as long as you don’t count the lender who holds your mortgage. It’s an incredible feeling to walk through your front door each and every day, knowing that this house is yours - and yours alone.
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