Most well known financial gurus (Suze Orman, Dave Ramsey, Charles Givens) advocate paying off your mortgage early when possible. Most likely you've heard about adding extra principal payments to your mortgage to pay it off early. It definitely works, but most people are not disciplines or financially educated enough to do this consistently enough to make a difference. Here are 4 different strategies to keep in mind when looking for ways to pay down your mortgage without changing your lifestyle.
1. Make simple principal payments. I won't assume that you have a fixed conventional loan, but if you do, the difference is that you will not realize the benefits up front. It will reduce your principal at the end of the loan, or at the time of pay off. If you do have an Interest Only loan, you can make principal payments at any time, and the next month, you will see the evidence of a reduced payment because you cannot pay interest on principal that does not exist. Making periodic payments will help you, but not much and you really won't see the benefit until you either sell your home, or was down the road when you pay it off.
2. Make bimonthly payments. If you are paid every two weeks and live on a monthly budget, you will have two extra payments per year which you can put towards your principal payments, this will result in a mortgage reduction of approximately 7 years on a fully amortized 30 year mortgage.
3. Make consistent payments in excess of one payment per year. If you can afford it, you can make additional monthly payments in as much as you can afford. If you can afford to make double payments, then you will pay your home off exponentially quicker. If you calculate your payment based on a 15 year amortization and make that payment every month, you will pay it off in 15 years. The challenge here is that it will be a large payment.
4. Leverage Short Term Interest to Pay your mortgage. This is a new and more advanced financial planning concept, but it is catching on in the states. In short, you would acquire a home equity line of credit and use this account to deposit your check in and pay all of your bills out of. The theory is that as you deposit your checks, you will offset any interest payments and any discretionary monies will be used towards the mortgage. The BIG advantage, is that you can leverage the line of credit to pay down your mortgage in large amounts at the most opportune time based on your loan structure. This allows for the absolute fastest reduction of a mortgage (reduces the term by a third to a half), and even better, you can then take those funds once you have paid off your loan and begin to invest. In the end, instead of paying off your mortgage in 30 years, you will have paid it off in about half the time, and put those fund into an investment account and you are now not only debt free, but have used your home to accumulate more wealth than most people ever dream of.
I am promoting Option 4 as it is the most reasonable option for the average homeowner and the emphasis is on paying off the mortgage in the shortest amount of time without changing your current budget. This program can even help people with little to no equity and those who owe more than their home is worth. After a short period of time on the program, you will be back in your equity position and not have to take a loss if you need to sell.
If you are interested in a free mortgage analysis to see if your mortgage qualifies for this program, please contact me at anthony @ atozlender.com
Wishing you the best in 2008!
Anthony
3 comments:
Well done, Anthony.
But what if you put the $3500 some people are charging for a money merge account toward your mortgage? Wouldn't that save about $20,000 in interest in and of itself?
If you just put $3,500 towards your mortgage, you will certainly reduce some of your future interest. Using the software used by U First in conjunction with a money merge account has several additional benefits.
One point to note first - it's not a $3,500 fee paid out of your pocket. One person had explained it to me like that and I was totally opposed to it, thinking similar to your comment.
Here are the benefits of using a Money Merge Account with U First:
1. The software calculates the exact amount of money to pay down (as well as the precise time to make payments) to pay your mortgage off in the shortest amount of time. Most client pay off their mortgages in a 1/3 to 1/2 of the normal time. Keep in mind the average person pays 3 times the cost of their home if they finance it and pay it all. Se lets say you have a $100,000 home and you total payments for the life of the loan is $280,000. Would you rather make a one time payment and reduce it by $20,000 or invest in a system that will reduce it by over $140,000?
2. You can re-claim your equity in your home. In this current mortgage and real estate climate where values are dropping, so many people end up owing more than their home is worth. In a relatively short period of time, the software can assist clients in reducing the mortgage balance to put them back in an equity position.
3. It is a lifetime financial planning tool. Once you invest in the software, it's yours' Whether you pay off your mortgage and want to use the system on an investment property or buy a new home and want to cat that new mortgage in half, it is yours and you only have to pay a small transfer fee.
This method of reallocation of funds has been used in other countries very successfully for years, and now it is catching on here in the states. It is hard for people to conceive because we are just conditioned to think a certain way. Once I saw it in a Power Point format, it made so much more sense to me, to the point where I can emphatically recommend it to my clients, knowing that it is one of the best financial planning tools they will ever use.
I hope that helps. If you want any more information on it, you can email me at anthony @ atozlender.com
Anthony
Great post Anthony,
As we move into the last month of 2007, mortgage interest rates are continuing to decrease. They are now at the lowest point in more than two years, thus opening a bit wider the door of opportunity for home buyers. It’s now at the lowest rate since January of last year. This is a popular option for many homeowners who are now refinancing their mortgage. :)
LiveMortgageFree
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