How to Save Money on Your Mortgage

How Paying $20 Extra a Month on Your Mortgage Can Save You Thousands

By far, the largest debt that any of us will ever undertake is a mortgage. They are Stretching out 15, 20, 30 and now with recent offerings – 50 years! Mortgages represent promissory notes to pay back a large sum of money to purchase your home with interest being calculated every month. For many people it may be upwards of 5 years or more before they even make any significant ding in the principal. Most of the early payments towards a mortgage go primarily to pay off the large sums of interest on the money borrowed.

Let’s take a look at an example to bring the point of mortgage and interest rates home. Let’s assume that we are borrowing $100,000 at 8.0% interest for 30 years. Your monthly payments are $733 per month. In this situation you would end up paying your original $100,000 balance plus over $164,000 in interest! You have paid for your house, not once, not twice – but almost thrice!

As you can see interest is the biggest financial gotcha when taking out a mortgage. It can turn what once looked like the American Dream into the American Nightmare by paying almost three times what the house is worth. Not to mention you have that $733 payment hanging over your head for 30 years.

However, there is a trick that you can use to bring your mortgage payments and total cost under control. It’s something simple that most people can do if they cut out going to the movies once a month or give up that morning coffee for just two weeks every month. By setting aside an addition $20 per month to send towards your mortgage you can considerably lower your interest payments, but also lower the length of the loan and build up equity in your house. A one-two-three punch!

Would you believe that by sending an addition $20 per month, for a grand total of an extra $7,200 over the life of the loan you can cut your interest payments by almost $29,000! Think of that for just a moment, for an INVESTMENT of $7,200 you will get a return of $29,000!

But wait, it gets better!

Say you decide to cut out the morning coffee for the entire month and start having a cup at home. You soon find that you have an extra $50 in your pocket that you can send towards the mortgage payment. Guess what? You now gave yourself a $74,000 dollar raise! What’s even better is now your total interest payments over the life of the mortgage note has dropped from the original $164,000 to $108,000! That is money you can take to the bank!

So I challenge you to do this. For the next 12 months set aside a $20 dollar bill each month to send towards your mortgage, over and above your normal payment. Then I want you take your mortgage statement from last month, and the one you will receive a year from now and compare them. After you start smiling and realize how much money you are saving I want you to take another $20 and make it $40 a month, then find another $10 or $20 and add that to it.

It’s ok if once every few months you can’t send the extra, but every chance you get I want you to send in as much as you can on your monthly payment. Trust me, you will be smiling all the way to the bank in years to come!

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