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| Save Money by Paying Off Your Mortgage Faster |
Submitted by:
Tip Hero 08/01/2008 5:27 PM
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 With the real estate market struggling and home prices falling, the days of buying a home and flipping it in just a couple of years for a hefty profit are most likely over. So now most people are “stuck” with the home they’re in for at least a few years. Hopefully you have a home that you’re happy living in, and better yet, you’re planning on staying in for a long time. Given the sagging home prices and all of the fees associated with buying and selling a home, staying put is a great path to take.
If you don’t have a fixed mortgage, you should seriously consider refinancing and getting one as soon as possible. Who knows where rates will be in a few years, and now that the quick-flip days are over in real estate – at least for a while – you may end up owning your home for many years to come. A fixed rate will bring peace of mind and most likely lower payments over the long term.
All of that being said, we found three tips for paying off your mortgage faster, helping you save money along the way. Good Housekeeping suggests the following:
1. The Dollar-a-Month Plan. Let's say you took out a 30-year fixed-rate mortgage for $150,000 at 6 percent today. By adding an extra dollar to your $900 payment each month — one dollar the first month, two dollars the second month, three dollars the third, and so on — you would pay off your 30-year loan in 22 years. We think this is a great idea. Start small. Learn to save as you go. And cut into the life of your loan. Plus, you’ll greatly reduce the amount of interest you pay:
Over 30 years, interest would probably total about $174,000; on the Dollar-a-Month Plan, you'd pay approximately $122,000, an impressive savings of $52,000. They also suggest starting with more than $1 and going up $1 per month from there. You can get pretty creative with this. The important thing is that you do something and stick with it.
The next tip involves making one extra payment per year:
2. The Biweekly Booster. Instead of sending the bank one payment a month, break that amount into biweekly checks. If you go biweekly, you'll send 26 checks a year, which works out to one extra payment annually, with this surprising result: You'll be mortgage-free six years sooner — and save nearly $37,000 in interest. We like their third tip too, but we think this might be a bit of a stretch for a lot of people and may not be possible – and that’s okay:
3. The 15-Year Swap. Because interest rates on 15-year fixed-rate mortgages are often lower than on 30-year loans, consider refinancing to pay off your loan faster. Keep in mind, however, that your monthly payments will go up. Swap that $150,000, 6 percent, 30-year loan for a 15-year one at, say, 5.5 percent, and you'll pay roughly $1,230 per month instead of $900. Even if you don’t act on number three, by following the first two tips, you can make a big dent in the overall amount you end up paying on your loan, not to mention you can greatly reduce the number of years you have to make those payments.
For the full story, visit Make Your Mortgage Disappear: Three ways to pay off your mortgage fast — and save
Photo credit: james.thompson |
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