Wednesday, July 22, 2009

Secrets About Paying Your House Off

Hello all!

So, if you know me, you know I'm a finance guy and with a career in real estate finance. I am constantly calculating ways to get my mortgages paid off (rental properties and owner occupied house all the same). I've found some easy ways that you can make this happen a lot sooner. Some may argue that having a mortgage is good for tax reasons because of the mortgage interest that you can write off, etc. but what's better than truly being free of debt?

So, here's the easiest and laziest way that you can pay off your mortgage sooner without changing too much about the way you're doing it now. My first piece of advice is to round off the check to the highest tenth of hundredth dollar. For example, if your payment is $893, make it $890 or even $900. This is an obvious way that you can apply extra to your payment every month to pay the loan down without strapping the budget. My second piece of advice is very, very easy as well. Set up bi-monthly automatic deductions for your payment. Your bank with automatically withdraw your normal payment at 2 intervals in the month, both of your choosing if you want to set the exact dates. What this effectively does is that it cuts the compounding interest that occurs throughout the month on your mortgage and you end up paying far less in interest over the life of the loan.

Here's a numbers-centric example of this in action. Take a mortgage amount of $132,000. Let's assume we have a 30 year mortgage at 6.5%. If we make these bi-monthly payments every month, we'll cut 5.67 years off our mortgage. It also saves approximately $36,953 in interest over the life of the mortgage. The normal payment is made, you just happen to cut it in half at two intervals in the month. So, if you normally get paid on the 15th and the 30th (for sake of argument), have the automatic withdrawals made on these dates and you'll find an easy and no hassle way to pay off your mortgage in 25 years (as opposed to 30) and save you over $36,000 over the life. That's a lot of savings!

If you wish to plug in your own scenario in to a calculator to see how much this will save you, see here: Just put your loan amount in, if you pay extra each month, add that as well, put the years left in on your loan, and wa la... you'll find out when you'll pay off the loan.

Nearly every loan company or bank has the option to do bi-monthly automatic payments. Just give them a call and they'll let you know what the procedure is. If you have questions about this, shoot me an email as well. It's what I do.

Have a fantastic Thursday!

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