The Home Buyer's Korner

Information presented should be used for educational purposes only.

March 3rd, 2015

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The Home Buyer’s Korner

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Amortization Schedules~A Useful Home Buyers Tool

amortization scheduleYour mortgage is probably the largest debt you have, so it’s not surprising that most of us want to find a way to rid ourselves of this financial burden as soon as possible. By paying off a mortgage faster you can not only free up income to pay for or invest in other things, you can also save thousands of dollars in interest. If you have or “thinking about getting” a mortgage do yourself a huge favor and implement at least one of the following ways to pay off your mortgage faster.

Bi-Weekly Payments

This is a very simple way to speed up the payment of your mortgage without even noticing – choose bi-weekly over monthly payment. Instead of 24 payments per year you are making 26. Make sure you are choosing an accelerated payment option, which adds two payments rather than dividing an entire year’s payments by 26. With just a simple payment change you can save up to tens of thousands of dollars and be mortgage-free as much as four years earlier. However, it’s important to set up bi-weekly payments with our lender and not do it on your own. A bi-weekly payment schedule requires a unique servicing schedule by the lenders and if your mortgage agreement isn’t set up to address Bi-Weekly Payments, it could create a misunderstand and you probably won’t end up on the winning side. Avoid working with any third party provider offering to assist you with setting up a bi-weekly payment with your lender, they charge fees and aren’t really doing you any favors; work directly with your lender.

Increase Your Payment

Just a slight increase in monthly or bi-weekly mortgage payments can make a huge impact on how quickly you own your home free and clear. For $50 a month you can save as much as two years off your mortgage and that’s thousands of dollars in interest. Take a look at your mortgage or talk with your lender to ensure you don’t have a pre-payment penalty.  If you do, many of them let you principle reductions up to 20% every year, just make sure you don’t invoke any prepayment provision.

Watch Rates

Interest rates have probably seen their historical lows, but still near them.  Now is the time to refinance, if it offers an advantage. Make sure you find out from your lender any penalties involved and account for expenses to put a new mortgage in place. While getting a lower interest rate is great, it will only help pay off your mortgage rate faster if you keep your payment the same. For example, if your monthly payment is currently $1169 (at 5%) and you switch to a mortgage that is 3.5% your payment may drop to $1001 per month. While you are now saving nearly a lot in interest over your term you aren’t taking advantage of the lower rate unless you keep making the $1169. That extra $168 per month results in faster principle reduction and that’s when you really see the big savings, by paying off your mortgage years earlier.

Lump Sum Payments

Whether it’s a tax refund, an inheritance or a bonus from work, any extra cash that is put towards your mortgage makes a difference. Even if your mortgage has a prepayment penalty, most lenders allow you to pay up to 20% of your principal off each year. One $10,000 payment can take two years off your mortgage term as well as a saving doubling that amount in interest alone.

Do It All!

If you are really serious about paying off your mortgage, then you may need to employ a combination of the tactics. Take a moment to check out Adam’s video on how to use an amortization schedule to get the answers you need to know about pay off your mortgage sooner.`

Get Your Link to Adam’s Amortization Chart

To use my Excel spreadsheet you need to have Excel on your hard drive. Access the spreadsheet from our Dropbox, then make sure to click on the “Open” button to start using the spreadsheet and figure out your estimated house payment. Have fun!

If you have any difficulty downloading the spreadsheet, other free amortization schedules are available on-line.

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