Partners

Suggested Searches

Disclaimer

Menu

Home - Real Estate Investing made easy

Become a Copywriter

Become a Mortgage Broker

Buying a Home

Credit Repair Debt Consolidation Business

Early Payment Discounts

Effectively Using Lease Options

Equity Line of Credit Loan

First Home Mortgages

First Time Home Buyers Tips

Home Improvement Finance

Home Mortgage, Bad Credit, What’s my chances?

Mortgage Lenders

Mortgage term - Which is right for you?

New Home Buyers

Personal financial plan

Real Estate investing information

Real Estate investing with no money down

Real Estate investing strategy

"Subject To" Real Estate Deals Explained

The Lease Option Purchase

Three Ways of Building Home Equity in Any Real Estate Market

What is the Deal with Interest Only Mortgages?

Your Retirement and IRAS Planning

Early Payment Discounts

Leverage Early Payment Discounts to Save Thousands of Dollars on Your Mortgage!

The dream of owning a home is becoming very allusive these days. Although everyone would like to have a home that is paid for free and clear, many people are forced to assume mortgages that will be paid over 25 or 30 years into the future.

Everyone is constrained to a certain degree by their budget. Yet there is a way to pay off the existing mortgage on your home quicker and save money in the process. By applying early payment discounts, you can save a considerable sum of money over time.

Almost all mortgages have built into them an Accelerated Payment Clause. This allows the borrower to pay more than the minimum amount of the monthly mortgage payment.

To do this you simply remit more to the lender than the usual mortgage payment every month. The benefit to this is that every extra dollar paid against the mortgage will lower the outstanding balance of the mortgage. This increases the equity in your home faster over time. Also, by lowering your outstanding balance, you will save on interest charges.

Here is a good example based on the scenario of an average family.

If you are an average family of four making $50,000 a year, let us assume that you are saving annually at the same rate as most Americans. This rate of savings as reported by our government is about 4% of your income every year. This would mean that you are putting $2000.00 in the bank every year for future purposes. This comes out to around $167.00 a month.

Right now you are probably receiving less than 1% Annual Percentage Rate (APR) on your passbook savings.

Why not take $100.00 of this money that you would normally save and pay down the mortgage on your home ahead of time? The following example shows why this is in your best interest.

If you take out a mortgage on a house for $200,000 at a 6% fixed rate, and the contract calls for repayment in monthly installments over 30 years, your monthly mortgage payment would be $1,210.56.

If you paid an extra $100.00 dollars per month toward the amortization of your mortgage, you would add $1,200.00 to the equity in your home every year.

In this scenario, the total amount paid to buy your home over the life of the mortgage would be $435,798.89. When you add $100.00 to your mortgage payment every month, the early payment discounts amount to a massive saving of $46,360.13 in interest charges over the life of the mortgage. You would also be able to retire your mortgage earlier.

The early payment discounts have allowed you to trim 38 monthly payments off your repayment of the mortgage. So the mortgage would be paid off 3 years and 2 months sooner if you use this repayment method.

In short, what this strategy does is shift your money from passbook savings only ($2,000.00 per year), to paying $1,200.00 on your mortgage, and saving $800.00 directly into your bank account each year.

To sum up the benefits of using this method, the borrower in the example above saved $46,360.13 in interest on their loan, and accumulated $21,923.85 in passbook savings ( $67.00 per month X 1% APR X 322 months ). This equals $68,283.98 in accumulated savings over 26 years and 10 months (This is the actual time it would take to pay off the original 30 year mortgage).

If the family would have put all of their money ($167.00 per month) in a passbook savings account only, they would have accumulated $54,646.35 over the same period of time.

So this family applying the early payment discounts would have actually saved $13,637.63 more by using this accelerated payment method. And they would have also paid off their mortgage 3 years and 2 months earlier than normal.

This method can be used in any situation where the mortgage has an Accelerated Payment Clause built into it. It will work best if you are consistent with the amount that you pay on your mortgage every month. Any change in the amount of monthly repayment of the mortgage will affect the amount that you will actually save.

Check with your banker to find out if your mortgage allows for Accelerated Payments. Then you can use this strategy to save a lot of money on your mortgage and own your home sooner. You can easily see the advantage of using early payment discounts.


Click Here for your Free Traffic!