Simple savings

Have you given any thought towards putting additional money toward your monthly mortgage payment?  Sometimes spending a little more money actually will save you a lot of money in the long run. 

“That doesn’t make sense,” you say.  Let me show you.

To set up my example let me give you some upfront information.  Let’s say you just bought your home and financed $100,000 for the next 30 years at a rate of  5%.  If you have access to a mortgage calculator, you would agree with me that equals a monthly principle and interest payment of $536.82.

Here is what your amortization table would tell you that you received at closing:  if you make your payment on time for the next 30 years, you would repay a total figure of $193,255.78.  Which means, it will cost you $93,255.78 in interest to borrow the $100,000 for 30 years.  It got you the house of your dreams, but I will agree, that is a lot of money.

Here is how you can beat the amortization table. . . . 

By adding an extra $100 to your monthly payment (re: the example above instead of $536.82 you send $636.82) and identifying that you want it applied to the principal, it changes the total repayable to $162,675.53.  That is a difference of $30,580.25.  Not a bad savings for applying an extra $100 towards your monthly mortgage payment.  This same example would also allow you to own your home in just under 22 years.

Or

Instead of electing the 30-year mortgage note, consider a 15-year note.  By substituting a 15-year term in the example above, the monthly payment would be $790.79, and the total repayable on the mortgage note would be $142,342.85.  Again significantly less interest over the life of the loan compared to the 30-year option.