Okay, I know this might sound like an infomercial, but it’s not. Ramit, NYTimes best-selling author of I Will Teach You To Be Rich and I have been collaborating to find ways to save big chunks through automation. Here’s my contribution which can also be seen at VideoCreditScore.com. Here, I show how someone with a $300K mortgage can save over $71,000 over the course of their loan.
Sadly, few of us take advantage of this automation. Less than 1/3 of all Bank of America customers make a 13th payment each year, and less than 10% take advantage of plans like PayPlan/26.
The higher your interest rate and/or mortgage, the more you save. Of course, this is why the other great way to save on your mortgage is to have a credit score higher than 760. Your credit score can be translated into a rough estimate of your interest rate and the difference between a 5% APR and a 6% APR can mean over $67,000 in savings over the course of that loan for a $300K mortgage.
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- Categories: Mortgage Broker, Mortgage Types
Comments
5 Comments so far
jpflorida
There are many mortgage companies that will offer a biweekly option at closing or just after. Chase is one of those lenders. However, you have to be careful because many of these lenders (including Chase) will hold the 1/2 payment and apply the total once they receive the other half. Although this will help with principle reduction, it is not as effective as applying every half payment as soon as it is made. Check with your lender.
Do It Yourself Loan Modification
Mary Miller
If your mortgage company doesn’t offer a program like this, or if they charge to participate, another way to pay off your mortgage faster is to just pay more every month. For example, if you have an $1800 payment, submit $2000. Set it up via automatic online bill pay through your bank. That’s assuming you don’t have a pre-payment penalty attached to your mortgage AND you actually have extra money to spend that you don’t want to invest elsewhere (like the stock market).
Andy
Mary makes an excellent point. In fact, if Chase is your mortgage holder, this is really the only route to take. The key is automation so it doesn’t “feel” painful each pay period.
Patrick
Does either the extra payment or the larger payment plan work when the owner doesn’t plan on staying in the property for the life of the loan?
I’m assuming you would continue the strategy with the next property/mortgage.
Thanks!
Mary Miller
Patrick,
Yes. It works because all extra money you pay every month goes toward paying down your principal. So you grow your equity faster, and the interest you pay (dollars, not %) is lower, too, since it is calculated on a smaller principal amount due to your more aggressive payments.