before you make the change, make sure that your mortgage allows you to pay early. It used to be called something like ';allowed to pay early without penalty'; or something like that.
Some mortgages are writing so that even if you pay off the principle early, you owe the same amount of interest as if you had not paid the principle off early.
yeah, i know it sounds crazy. I have no idea why some are ( or were) like that.Can anyone tell me if you pay an extra 400 a month towards the principal on your mortgage,?
i am a mortgage broker and i can fax you over the whole break down for this if you want..just email me a fax number...if not the the savings would be $189,736 in interest alone and you would cut your term to 16.3 years..now this is assuming a 6.5% rate seeing how you didnt tell us what the rate was..
If you have just purchased a house. All the ';interest,'; gets
paid off first. Then you start paying on the ';principal.'; Any
extra you pay on the principal. It comes off the ';back'; of the
mortgage, not the ';front.'; Check with an lending expert. %26lt;}:-})
most mortgages tell you what amount of your current payment is principle, and what is interest. If you make an additional principle payment, you will shorten your note by one month. Whether that is a good idea or not, depends on a lot of things. Who 30 years ago would have projected today's prices?
It depends on the interest rates on a 30 year versus a 15 year mortgage. On a 6.% mortgage, the monthly payments on a 15 year mortgage is $2,520.00. On a thirty year mortgage, the monthly payments would be $1,830.00 for the 30 year mortgage.
15 x 2520 x 12 months = 453,600 or 205,200 in savings on interest.
30 x 1830 x 12 months = 658,800
That's too difficult for me. However, your mortgage adviser should have the figures for you.
We paid off extra on our mortgage and saved quite a bit of money - so in general it makes sense to do this if you can. It also depends a little on the type of mortgage you have - some are set up so that you can't do this. You're definitely going to have to consult your mortgage adviser.
I'd also suggest that you ask the mortgage adviser in what circumstances it would be a bad idea to do this. In this volatile real estate market, it might be that you would be better to save the money elsewhere.... you really gotta ask.
M
Extra payments are usually applied directly to principal. Sending extra each month can dramatically shorten the term of your loan. See the articles below.
Doing that will cut years off your mortgage, even paying it bi- weekly instead of monthy cuts like seven years off your loan. Good idea, pay extra when you can instead of commiting to such a large payment.
Without knowing the interest rate, I can't give you an exact answer. Assuming that you have a reasonable interest rate (under 6.7 percent) and that its fixed, then I would argue 1) you should pay off every other obligation you have, especially credit card debt, before you pay a penny towards your mortgage and 2) because mortgage interest is tax deductible, you may be better off investing the $400 per month so as not to reduce the tax benefits of the mortgage.
I reduce my overall interest and life of my mortgage by:
1) Making payments twice per month and reducing 1/2 on the 15th and 1/2 on the 30th...
2) Making 1 extra payment over the course of the year...
Both techniques are easy ways to pay down your mortgage quicker and reducing the interest you will pay on the life of the mortgage... With automatic withdrawal and payment options from my bank it is all done electronically...
my understanding is that if you can repay an extra amount at this sort of level the savings in interest that would have been added to your account are phenominal
There are a couple of pieces of missing info to be able to answer your questions specifically, so I made a couple of assumptions, and the result should hold true. First is what is the interest rate that you are paying, and is the loan currently a ';fully amortized'; one, that is one that has a payment amount that will reduce the loan to zero at the end of 15 years currently?
I assume that you have a 15 year fully amortized loan at a 6% interest rate (of course many loans are available for better rates, but this is a common average) so the payment would be about $2,447. At the end of 15 years the loan would be paid off and you would have paid a total of $440,460 of which $150,493 is interest. By paying an extra $400 a month, your payments would be $2,847 and would be paid off just under 12 years, saving you three years of paying a mortgage, and the total amount paid would be $406,381 for a total interest payment of $116,392 saving you $34,101 in interest payments.
That's the direct answer to your question...but something to consider is if you were able to put that $400 into another investment with a higher return than the interest you are being charged on your loan, then at the end of the 15 years you would be better off and further ahead. That is a personal decision and something to be weighed against the value of security one would gain in having their home fully paid for.
Either way, you are in a great mind set to put that extra money to work for you instead of buying useless doodads or frittering it away on other non investment choices. Great job and good luck!
I am not sure what the savings would be, but as long as you don't have a penalty for paying early, most don't, you will save money. Make sure when you pay the extra money, you mark it as a principal only payment!
i dont think u would unless you send payments directly to ure principal!!!
iF you can afford it I would do it
We cannot answer your question specifically unless you give us the interest rates. Normally, a 30 year loan has a higher interest rate than a 15 year loan, about 0.5% more. In addition, most of your payments go to interest on a 30 year loan. eg. for $290,000 at 6.25% int. for a 30 yr loan, your monthly payment is $1785.58. If you pay $400 more each month ie. $26,226.96 in total for the first 12 months, you would have paid $17,888.84 in interest by the end of the year and only $8338.13 in principal. On the other hand, if you go for a 15 year loan at 5.75% int., your monthly payment will be $2408.19 or $28,898.28. By the end of the year, only $16,347.66 goes to interest and $12,550.61 goes to principal. The difference in principal reduction is $4212.48. The question to you is: would you rather pay off the loan faster, or pay the bank 10.5 months of $400 extra as income to the bank but insurance for emergency to you?
First you have to see if your loan allows for that. Believe it or not their are loans with early pay off penalty. Now if it dose allow for early pay off with no fee then you have to specify to the mortgage company where you want the money to go. It has the potential to save you 70 to 80 thousand dollars in interest you would not have to pay. Pulse the satisfaction of an early pay off.Good luck .
You can probably google a mortgage calculator to find out this information. You can also contact your mortgage company who can calculate this for you. Read your note to see if there is a ';pre-payment penalty';. Even so, it's usually for mortgages that are paid in full in 3-5 years and not the lifetime of the loan. Yes, paying just one extra payment a year cuts 7 years off your loan. If you want to pay Bi-weekly, you need to check with your lender to see if you can do this.
It depends on the interest rate. But for example, if you had 7.0% fixed for 30 years for a $290K loan, your payment would be $1,929 before property tax and insurance. Paying an extra $400 of principal per month, you would save $175K in interest and would pay the house off in less than 19 years (instead of 30 years).
Getting a 15 year loan would get you a slightly better interest rate, but would make your monthly payment about $650 higher.
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