Do you know that you can save tens of thousands of dollars on your home loan by paying the very same amount on it every month? Not many homeowners realize how effortless this can be.
Most of us are paid once every two weeks. If you are like most people, as soon as you are first paid, you spend a lot because the cash is there, but cash gets tight towards the end of the pay period. And yet, we basically spend the same amount each week.
But we spend the bulk of our money early in the period and then struggle at the end. The solution to this problem is to budget your funds in general, but budgeting your home loan payment, the biggest single expense for most people will help with the issue.
Budgeting this large component of your costs in this way will not impact your monthly expenses, but save you a lot over time. For an $80,000 mortgage that has a 30 year term and a 7% interest rate, this easy trick can save in excess of $25,000.
The trick is simply to budget mortgage payments and pay half out of each paycheck, instead of all out of one. (Most people use the second pay of the month to pay the mortgage since it will get to the bank by the due date.)
When you pay one half of your home loan two weeks early, the outcome accumulates, and your mortgage is paid off early. This will make your interest payments to be less over the whole term of the loan.
When you make a payment on your home loan, the bulk of the payment is used for the interest and only a small part for the principal. While you are paying this small bit of principal, the interest contnues to grow. But if you up the frequency of your payments, the interest is paid down earlier, and then your payment starts to lower your principal. This means that your total mortgage will actually be paid up earlier!
Some banks have special forms to do this, but even ifthey don’t, you can just send in the additional payment; just be sure to include your account number. Another idea is to copy your mortgage payment form and adjust the due date on the extra one.
As you can see, without any effect on the total impact on your monthly budget, you have found the magic recipe for saving tons of interest and paying your home loan down ahead of time.
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