Accelerate Your Mortgage
Most home owners pay their mortgage payment each month and have no idea they can save tens of thousands of dollars and pay their mortgage off several years earlier just by making a simple adjustment to their payment schedule. My eyes are always open looking for opportunities to make or save some green but this is a biggie and every one should benefit from it. Real Estate in Orange County is some of the most expensive in the States and most people that live here like to find ways to maximizes their investments and capital gains. This is an example of a simple strategy that I use and recommend to my clients here in Orange County California.
Here’s How
Change your monthly payments to automatic Bi-weekly payments.
By changing your payment schedule to biweekly half of your monthly payment is withdrawn every other week. In a years time, 26 biweekly payments will be made. This is equivalent of one additional monthly payment applied to your Principal each year. Not only are you adding one additional payment per year, you are also saving on interest because you are paying down your principal balance at a accelerated pace over the term.
The diagram below is an example of a typical $300,000 mortgage with a fix interest rate of 6% for 30 years.
The Red demonstrates the traditional monthly payment plan most home owners use. If the home owners on the monthly plan stick to the minimum payments each month it will take 30 years to pay off with no savings.
The purple demonstrates the minimum payment over a 30 year term, but in fact is paid off 5.5 years earlier and saving a ton of cash along the way. If you can afford to add a little extra each month it will be applied directly to the Principal and will help with the compound effect drastically over time cutting and saving even more.
Some of of you will be thinking, (like I did at first) Two withdrawals form my checking account each month will just make my account management that much harder to deal with. This is what I did.
- Open a new free checking account.
- Calculate what your Bi-weekly payments will be.
- Deposit a cash cushion of equal to one bi-monthly payment plus a little more to be safe.
- Set up a automatic monthly transfer of equal to two biweekly payments. (if your like me round it off to the next $100 and build a little savings at the same time.)
- Then change your monthly mortgage payments to Bi-weekly. Done!!!
You can now pat yourself on the back and watch your mortgage accelerate to the $0.00 finish line.
As always we are just a ph call away and willing to put you on the right tract.
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