Some time ago we discussed the benefits of going with a 15-year mortgage versus a 30-year mortgage. Many of you that are looking to buy soon expressed great interest in the 15-year mortgage. It is truly the best way to go financially. You save the most on interest. For those of you that are already in a 30-year mortgage, it’s not necessarily out of your control to save on interest. You do have a couple of options to help you. The first would be to refinance into a 15-year. However, if you have a pretty low interest rate and/or have been paying on the note for many years, it might not be worth it. There are closing costs involved in refinancing, and it doesn’t make sense to do so all of the time. Please check with me to see if it might be worthwhile.

So today we are going to talk about the impact of making extra payment(s) towards your mortgage.

On a traditional 30-year fixed mortgage, by making (1) extra payment per year it reduces your note by 7 years! You don’t save as much on interest as a 15-year mortgage, but you still save quite a bit.

On a $150,000 loan @ 6% on a 30-year note, the Principal & Interest would be $899.33.

By paying an extra $200 per month ($1,099.33), that 30-year mortgage will be paid off in roughly 19 1/2 years! That takes 10 1/2 years off (or $113,315.05 of interest you don’t have to pay!).

Even paying just one extra payment a year would take off those 7 years (or $75,543.72).

As you can see, it is well worth paying extra towards your mortgage. Even if it’s just $25-$100 per month, it still can make a big difference.

I strongly recommend paying off credit cards, cars/trucks, and student loans first, before you start attacking your mortgage…but we’ll save that discussion for another day.

Posted by Alan

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