A few months ago I shared with a friend the way we pay our mortgage and what we earned (+$100K) when we sold our old house and to my surprise, she hadn’t heard about the tactics I shared which left me with the question of how many of us actually know how to get ahead in our mortgage!
When I say getting ahead, I don’t mean physical being a month or two ahead, but if you do what I will share below you will be years ahead in your home payments and even pay your home before you retire depending on your age today!
Let’s go back a little.
When we purchase our first home we were newlyweds and understood one thing about our mortgage and that was, we were going to finish our home 30 years from that date! Like many newlyweds, we were just starting out and didn’t have the best jobs so we counted ourselves as blessed when we were able to get a grant and a low-interest rate.
(For more tips on buying your first home click here.)
We scheduled our payments to once a month just like everyone else did and signed a 30 year fixed rate instead of a 15-year fixed-rate mortgage.
Fast forward two years, we have made many changes to the home and decided that it was time to invest in our investment, literally. We chatted with our bank and made the decision to pay our home every 2 weeks. Now, this can get a little tricky but no we didn’t pay the full amount biweekly but the monthly amount was divided into 2 here it’s an example. For the sakes of making this easy on my non-math self, I’m going to use a google mortgage calculator.
Let’s say your home was $300,000 and your interest rate was 4% in a 30 year fixed rate mortgage you would end up paying a total of $515,609. Meaning you would pay a total of $215,609 over those 30 years because of the interest.
Here is a little breakdown.
Twice a year we get a month that has 5 weeks meaning that at the end of the year you’ll make an extra payment that will typically go directly to our principal. For you, this means thousands of dollars saved in interest. Depending on your interest rate you could be shaving years off your home! In our first home, this was a free service but with our current lender, this is not an option. I will talk about how to handle this in the next post but if your lender is able to accommodate this you would typically be able to shave off 5-7 years off your mortgage! This is huge. 5-7 years is a lot of liberty for making the same payments you already make.
What will you be gaining:
- Paying less interest over time. This is where YOU and I win. Saving upon savings.
- Cutting the PMI. This is one of the things that we all sign in that huge stack of papers. It means Private Mortgage Insurance. This is how the banks cover their backs! Once you have paid 20% of your home this little fee is dropped off that money goes straight to the principal.
- Finish your home faster! Doing this could give you so much liberty aside from no monthly payments. You could buy a vacation property and rent that and make money off it too!
If you read this far, give yourself a pat on the back! I know it’s a lot of information but I’m passionate about it helping us all achieve our life goals and living without debt! I really hope this post helps you and stay tuned for the next one!