Savings Tips
How to Reduce Your Mortgage
One Additional Mortgage Payment a Year
There's a simple trick to significantly reduce the length of your mortgage and save you thousands of dollars. The trick is to make one extra mortgage payment a year and apply that payment toward your loan's principal.
This is the method being used by "Bi-Weekly Mortgage Reduction Services" and "Bi-Weekly Mortgage Savings Programs". When you do it yourself, you don't pay a third party unnecessary set-up costs and fees!
Example: $100,000 loan, 30-year mortgage, 6.5% fixed interest rate
Extra Motgage Payments/Year |
Principal & Interest |
Additional Monthly Payment |
Savings |
Total Paid |
# of Years |
0 |
$632.07 |
0 |
0 |
$227,542.98 |
92.92 / 359 mos. |
1 |
$632.07 |
$52.68 |
$29,088.02 |
$198,454.96 |
24.12 / 290 mos. |
2 |
$632.07 |
$105.35 |
$46,492.13 |
$181,050.85 |
20.5 / 246 mos. |
3 |
$632.07 |
$158.02 |
$58,320.95 |
$169,222.03 |
17.92 / 215 mos. |
4 |
$632.07 |
$210.69 |
$66,969.79 |
$160,573.19 |
15.92 / 191 mos. |
| 5 |
$632.07 |
$263.36 |
$73,607.77 |
$153,935.21 |
14.34 / 172 mos. |
It may not be possible for you to increase your monthly mortgage payment. Keep in mind that most mortgages will permit you to make additional payments to your principal at anytime. For example, five-years after moving into your home you might receive a larger than expected tax return, an inheritance or a non-taxable cash gift. You could apply this money toward your loan's principal, resulting in significant savings and a shorter loan period.
Example:
With a $100,000, 30-year, 6.5% fixed interest rate mortgage loan, the borrower will pay a total of $227,542.98 to pay back the loan in 30 years. That equals $127,542.98 in interest payments.
If the same borrower makes a one-time $5,000 payment the first day of year 6, he/she will pay a total of $204,710.75 and pay off the loan in 27 years (324 months). That's a savings of $22,832.23 in interest.
Setting Short Term and Long Term Savings Goals
Savings and goals go hand in hand. Without goals, why would you save? If you want to reach your goals, you have to prepare. How do you set goals? What kind of goals should you set? Why are long and short term goals so important?
* Short Term Goals – Short term goals are very important for people who are trying to start good savings habits. By setting short term goals, you'll see your accomplishments and be spurred on to greater achievements. Short term savings goals are just what they sound like and could be related to weekly or monthly savings deposits, commitments to brew your own coffee, make your own lunch or just getting your finances in order so you can make sure you have a savings account with the right bank.
* Long term goals – Paying for college, retirement – these are long term goals. Long term goals prepare you for large financial burdens or dependency down the road. Long term goals are about savings, but they are more about using your savings wisely and letting your money work for you. You can also extrapolate the success of your long term goals by adhering to and managing your short term goals. You may not think that putting that $5.00 away this week will ensure a successful retirement, but you'd be wrong. Every little bit counts.
If you take the time to plan for savings, you'll build your savings up and maintain them. Set realistic goals for yourself and you'll see your financial health bloom and grow.