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How To Save Thousands On A Mortgage Or Any Other Loan
By David Berky
Interest on the average home mortgage will cost the homeowner nearly TWO TIMES the
cost of the home. If you were to purchase a $150,000 home with a $120,000 mortgage
(80%), and you paid an interest rate of 9% for 30 years, you will have paid over
$227,500 just in interest (in addition to the original $120,000). That's nearly two
times the cost of the home!
A credit card debt of $7000 (now the average) at 18% being paid at the rate of $20
principal plus interest each month will take over 29 YEARS to pay off, almost as
long as a home mortgage. Interest charged on this credit card debt will top $18,400,
more than 2.6 TIMES the original debt!
If you work for a living, you know that when you are not working, you are not getting
paid. But interest never gets sick, never takes a vacation and never sleeps. It is
working against you 24 hours a day, seven days a week, each and every day of the year.
So what can you do?
You may not be able to pay off your debts or mortgage now. You may not have enough
equity in your home for a loan. You may not be able to afford the refinancing costs
or home equity loan costs. You may not be able to lower your credit card interest rates.
But you can make additional or extra payments.
So how does making an extra payment help lower your interest charges? Is it going to
make next month's bill smaller? You can't scrape together too much for an extra
payment so how is just $10 going to help when you owe tens of thousands?
The secret is in making early and consistent extra payments. For example, on the home
mortgage shown above, if you pay an additional $100 each month you will save over
$82,000 in interest payments. Not only that, but you will also have your home paid off
nine years and two months earlier. You knock nearly 10 years off your mortgage just by
paying an extra $100 a month.
How does that work?
Well, that $100 extra you pay the first month would have cost you about $270 in
interest to borrow for 30 years. Since you have paid it already, you can reduce your
last mortgage payment by $270. The next month's extra payment will reduce your last
mortgage payment by $268. Each month as you pay that extra $100, your final mortgage
payment will be reduced until you won't need to make a final payment, then the second
to last payment, then third to last and so forth. Soon you will have shaved years and
thousands of dollars in interest charges off your mortgage.
That's great, but maybe you can't spare $100 each month. How about $50, $25, or even
$10? An additional payment of $50 each month will save you five years and seven months
and about $52,000 dollars. $25 each month will cut your time by three years and three
months saving you about $30,000. Just $10 a month will reduce your time by one year
and three months and save you over $13,500.
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