How to Save Thousands of Dollars on Your Mortgage
Below is a MRR and PLR article in category Finance -> subcategory Mortgage.
How to Save Thousands on Your Mortgage
Owning a home is a dream for many, but with long-term mortgages, that dream can sometimes feel out of reach. However, there are strategies to pay off your mortgage faster and save money.
Pay Off Your Mortgage Faster
Most mortgages include an Accelerated Payment Clause, allowing you to pay more than your monthly minimum. By doing so, you reduce your principal balance, build equity faster, and save on interest.
A Practical Example
Consider an average family earning $50,000 annually, saving about 4% of their income. This amounts to $2,000 a year, or around $167 a month, typically earning less than 1% annual interest in a savings account.
Instead, put an extra $100 per month toward your mortgage. Here’s why:
- Mortgage Details: $200,000 loan at a 6% fixed rate over 30 years
- Monthly Payment: $1,210.56
By paying an additional $100 monthly:
- Annual Equity Increase: $1,200
- Total Paid Over 30 Years: $435,798.89
- Interest Saved: $46,360.13
- Reduced Term: 38 fewer payments, mortgage paid off 3 years and 2 months early
Financial Benefits
- Savings Shift: Instead of saving $2,000 yearly, allocate $1,200 to your mortgage and $800 to savings.
- Interest Savings: $46,360.13
- Accumulated Passbook Savings: $21,923.85 (at 1% APR over 322 months)
- Total Accumulated Savings: $68,283.98 over 26 years and 10 months
If the family had only used their passbook savings account, they would have accumulated $54,646.35 in the same period. By using the accelerated payment method, they gained an additional $13,637.63 and paid off their mortgage earlier.
How to Get Started
Check if your mortgage includes an Accelerated Payment Clause. Consistently applying extra payments can lead to significant savings and help you own your home sooner. Consult with your bank to explore this option.
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