Interest rates are low and now is a great time to purchase or refinance, but once you are in that great new loan, what are some ways to get it paid off quick and save even more? Of course I am sure you have heard about the benefits of paying bi-weekly instead of monthly. This can be done by setting up a payment plan with your mortgage lender where they pull out half of your monthly mortgage payment every other week. Given that there are 26 bi-weekly pay periods in a year this has you making one extra payment on your mortgage every year without having to put the effort into actually saving up the money to do so. On a $200,000 loan that one payment can shorten the term of your loan by roughly 5 years and save you over $34,000 in interest over the life of the loan.
If one whole extra payment a year seems too much for a tight budget to handle you can do something as simple as rounding up your mortgage payment just a touch more. Rounding up an extra $10 a month will reduce the life of your loan by 4 months and on a $200,000 mortgage save you roughly $2,469 in interest. To really see an impact you can increase your mortgage payment by $50 a month for $12,666 in interest saved and shorten your term by 2 years, again based on a $200,000 mortgage.
If you are just purchasing your first home, these are good habits to get into to get the most out of your new asset. If you currently own, make sure you’ve checked out your financing options to see if you qualify for a lower rate or shorter term and then put these into play to get it paid off even faster.
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