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The dream of owning a home is becoming very allusive these
days. Although everyone would like to have a home that is
paid for free and clear, many people are forced to
assume
mortgages that will be paid over 25 or 30 years into the
future.
Everyone is constrained to a certain degree by their budget.
Yet there is a way to pay off the existing mortgage on your
home quicker and save money in the process.
Almost all mortgages have built into them an Accelerated
Payment Clause. This allows the borrower to pay more than
the minimum amount of the monthly mortgage payment.
To do this you simply remit more to the lender than the
usual mortgage payment every month. The benefit to this is
that every extra dollar paid against the mortgage will lower
the outstanding balance of the mortgage. This increases the
equity in your home faster over time. Also, by lowering your
outstanding balance, you will save on interest charges.
Here is a good example based on the scenario of an average
family.
If you are an average family of four making $50,000 a year,
let us assume that you are saving annually at the same rate
as most Americans. This rate of savings as reported by our
government is about 4% of your income every year. This would
mean that you are putting $2000.00 in the bank every year
for future purposes. This comes out to around $167.00 a
month.
Right now you are probably receiving less than 1% Annual
Percentage Rate (APR) on your passbook savings.
Why not take $100.00 of this money that you would normally
save and pay down the mortgage on your home ahead of time?
The following example shows why this is in your best
interest.
If you take out a mortgage on a house for $200,000 at a 6%
fixed rate, and the contract calls for repayment in monthly
installments over 30 years, your monthly mortgage payment
would be $1,210.56.
If you paid an extra $100.00 dollars per month toward the
amortization of your mortgage, you would add $1,200.00 to
the equity in your home every year.
In this scenario, the total amount paid to buy your home
over the life of the mortgage would be $435,798.89. When you
add $100.00 to your mortgage payment every month you would
save $46,360.13 in interest charges over the life of the
mortgage. You would also be able to retire your mortgage
earlier.
You would be able to trim 38 monthly payments off your
repayment of the mortgage. So the mortgage would be paid off
3 years and 2 months sooner if you use this repayment
method.
In short, what this strategy does is shift your money from
passbook savings only ($2,000.00 per year), to paying
$1,200.00 on your mortgage, and saving $800.00 directly into
your bank account each year.
To sum up the benefits of using this method, the borrower in
the example above saved $46,360.13 in interest on their
loan, and accumulated $21,923.85 in passbook savings (
$67.00 per month X 1% APR X 322 months ). This equals
$68,283.98 in accumulated savings over 26 years and 10
months (This is the actual time it would take to pay off the
original 30 year mortgage).
If the family would have put all of their money ($167.00 per
month) in a passbook savings account only, they would have
accumulated $54,646.35 over the same period of time.
So this family would have actually saved $13,637.63 more by
using this accelerated payment method. And they would have
also paid off their mortgage 3 years and 2 months earlier
than normal.
This method can be used in any situation where the mortgage
has an Accelerated Payment Clause built into it. It will
work best if you are consistent with the amount that you pay
on your mortgage every month. Any change in the amount of
monthly repayment of the mortgage will affect the amount
that you will actually save.
Check with your banker to find out if your mortgage allows
for Accelerated Payments. Then you can use this strategy to
save a lot of money on your mortgage and own your home
sooner.
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Ian Del Carmen is an online business professional
running his main site at
http://www.ianDelCarmen.com.
His other sites include
http://TheOnlineBusinessProfessional.com,
http://MobileEbooks.net,
http://InfoProductLaboratory.com,
and many more...
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