Mortgage Paid Off Sooner With Just a Little Extra Cash
Buying a house is the most expensive thing most people will ever
do. Almost 70% of Americans now own their own homes, and that is
an all time high. But the commitment to buying a home is a great
one; the payment schedule can run as long as forty years, the
interest charges will exceed the cost of the house itself and
the payments need to be made each and every month. It is no
wonder that people who finally pay off their mortgages often
throw parties to celebrate.
And while this commitment is
a long one, it doesn't have to be as long as you think. The
mortgage document may say that the term of the loan is thirty or
forty years, but there is nothing to prevent you or any other
homeowner from paying it off sooner. True, most Americans are
already paying as much as they can for their houses, but it
really isn't all that hard to cut several years off of the life
of the home loan. All it takes is a little bit extra each month.
The typical amortization schedule for a home loan
provides for an even number of payments that consist of an
identical sum of money each month. But the size of the payment
is misleading. Each payment consists partly of mortgage
principal, partly of interest, and partly of taxes. In the early
years of the mortgage, most of the payment is interest, with
only a small portion being applied to the principal. In later
years, when most of the interest has been already paid, a larger
portion of the payment will apply to the principal.
By
adding just a little bit to your payment each month, such as $20
or $50, the term of the mortgage can be reduced quite a bit. As
the principal is reduced, so is the interest that is due on the
remaining balance. This compounds over time, reducing the
overall time of repayment. An extra $50 each month on a $200,000
mortgage at 6.5%, for example, will cut more than three years
off of the repayment schedule. Even an extra $20 on the same
loan would cut 16 months off of the loan and save more than
$14,000 in interest.
Don't think that you cannot pay off
your mortgage sooner just because you don't have a lot of extra
money. It only takes a little bit to make a difference.