Buy A Foreclosure Home

Paying off your mortgage early is probably not one of your highest priorities in these unprecedented days of severe economic recession. Like most people in the US, chances are you’re struggling to keep your home and worried about an upcoming balloon payment on the horizon.

However, if you are fortunate enough to have kept your home despite the recession or have owned your home for many years, this topic should be of interest to you. Your 30 year fixed rate mortgage can be reduced by many years if you were to add a small additional monthly payment regularly.

Let’s say we have a 30 year fixed rate mortgage of 7% on a $200,000 house. After thirty years of paying on that mortgage your total cost of the house is $479,000. This dollar amount came from looking at a standard loan amortization schedule. That’s a lot of money and we can now do some calculations on how to lower that number.

What we can do next is divide the owed principle amount of the mortgage by the number of months left to pay off the mortgage. If this were a brand new loan there would be 360 months to pay on the loan to equal 30 years.

So the formula would be $200.000 divided by 360, which would equal $555.56. The $555.56 figure is the amount paid each month that equates to the average principle paid out over the life of the loan. You might be thinking that if you were to pay an additional $555.56 per month that you could pay off your mortgage in 15 years instead of 30.

Our formula then would look as follows: $200.000 ‘f7 360 = $555.56. $555.56 is the portion of the monthly mortgage that is the average principle pay out over the length of the mortgage loan. I bet you’re thinking that you could cut your mortgage from 30 years to 15 years if only you were to pay that additional $555.56 on a monthly basis.

My friend, you would be wrong. Instead, it would only take 13 years and 10 months to pay off! Compound interest is working on your behalf when you are paying off your mortgage early. But how many people have an extra $555.56 monthly for an early mortgage payoff?

Few individuals can pay that amount of money. However, you could dramatically cut the number of years off your mortgage by paying a small additional monthly payment. We have established that you can decrease your mortgage by 16 years and 2 months paying an extra $555.56 monthly. Would you believe that you could pay off your mortgage in 22 years & 8 months by simply paying one quarter of $555.56, which comes out to $138.89 monthly? Essentially, this payment schedule is cutting more than 7 years off the 30 year mortgage term!

For an added mortgage payment of less than $140 per month, that’s not bad. Paying off your mortgage early is the point of this exercise and it’s just a means to get you thinking how adding a little extra money monthly helps. Hopefully, you now understand that an early mortgage payoff can be achieved rather easily.