Taking a mortgage on your home is the largest and the longest debt that you will take in your life. However, investing in a house is a necessity, so you must be smart and try to see how you can save by paying more on your monthly mortgage payments. Your mortgage statement should show the amount repaid towards principal and interest. Calculate how much extra you can afford to add to your monthly installment based on your income and expenditure.
Why should you want to know about savings on your mortgage payments?
Its really as simple as controlling the future of your finances and saving thousands of dollars towards interest payments every year. You may never have enough finances to pay off the mortgage right away, or enough equity in your home to opt for a refinance. But you can make additional payments to reduce the accruing interest on your mortgage. This is important because interest payments over the life of the mortgage amount to nearly twice the value of the home. You must realize that the mortgage accrues interest every day and your lender has a vested interest in a long-term mortgage. So you be wiser and add just $50, $100 or $500 depending on your monthly budget, towards paying off the principal amount of your mortgage. Click here to calculate
How can a mortgage calculator help you calculate the savings on your monthly mortgage payments?
You will usually take a 15 year or a 30 year mortgage. Manually calculating the savings every month of this long tenure is tiring and you are bound to make errors. Instead it is better to use an additional payment mortgage calculator available at several financial websites for the same.
For example, for a loan amount of $120,000 with a 30 year mortgage, the monthly mortgage repayment at 9% works out to be $733.76. If you simply add $100 to this monthly payment, you can repay the mortgage in 20 years and nine months with a huge saving of $82,000 in interest. This is because your additional amount goes towards repayment of the principal. The $100 you pay in the first month would actually be $270 with interest. The next month you save $268 and so on. So you save about ten years and more than eighty thousand dollars in interest by just making an additional payment of $1200 a year.
Additional points to consider when increasing the monthly mortgage repayment amount.
- Ensure that the additional amount goes towards repayment of the principal amount. Your lender is quite likely to add it to the interest amount due for the next monthly installment.
- The lender may apply only a small amount as repayment of principal and deduct the rest as service charge. To avoid any such mistakes send a separate check with precise instructions stating that the additional amount is repayment of the principal.
- Check to see that the lender has no penalties for early repayment.
- Enquire if you can make bi-weekly payments instead of a lumpsum monthly payment. Ignore this option in case the processing fee is high.
How not knowing about this saving can hurt you
The mortgage calculator helps you automatically calculate the interest savings in pre-paying the mortgage. You simply enter the additional payment you will make each month and the time from which you will do so. The calculator will give you a comparison of the savings in interest instantly. Moreover, you can start by just adding $100 to your monthly installment and still benefit. However, ignorance of this fact means that you carry the interest burden for a longer time and waste money that can be better used elsewhere.
John Lester is CEO and owner of the acclaimed online mortgage resource
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