Have you ever taken a close look at your mortgage statement? You’ve paid thousands of dollars in monthly payments and your principal loan amount hasn’t changed. Ok it has, but very little. That’s because most of your money is going to interest while a small portion of it goes to pay down the principal.
When contemplating weather to pay more money towards your mortgage or save for retirement it’s good to understand how reverse compounding works. The secret Banker’s rule is such that for a mortgage that has a 10% interest rate the ratio is 1:20. What that means, for every one dollar you put towards your mortgage the bank gets twenty. So when you make an extra principal payment this is reversed. You will now get twenty dollars and the bank gets one dollar which is why a 30 year mortgage gets paid up much faster. When making extra principal payments make sure you write the amount in the designated spot on the coupon from the lender so it will be applied to principal. Just putting an extra $100 towards principal each month will save you about $24,000 in interest.
Most Americans do not have the extra cash to make additional principal payments.
If you’d like to find out how you can Super Accelerate the payoff off your mortgage and ALL your debt despite the market and your circumstances contact me and I’ll arrange for a one hour free consultation on how you will benefit from using a Mortgage Accelerator Software
Attend one of our free webinars on how to pay off all your debt in record time.
Paying for mortgages and debts seems like an unending ordeal that we face every month. Reality is we have to pay these mortgages to be able to keep what we have such as our house and cars. Not everybody can afford to pay for a house one time and rely on mortgage loans to be able to construct and buy their dream house. However since this is a long term debt, sometimes it feels like it is unending and many would find ways to make use of mortgage accelerator plans. The earlier they pay the mortgage, the earlier they can plan for their retirement.
A Bi-weekly mortgage payment is actually a great mortgage accelerator plan that would make paying your mortgage loan faster than usual. This is how it works, instead of paying your mortgage in a monthly basis, you will have to split the payment and pay for it every two weeks. This may look like the same but it is not. In a year we have 52 weeks which means that you will pay your mortgage 26 times a year resulting to 13 months of payment in a year instead of the usual 12 monthly payments in a year. So for a 30 year loan, you can end up paying for it in 23 years and lessen 7 years in payment (depending on the interest rate). Depending on what you and your lender had agreed it can actually not only pay your debt in an earlier times but also lower the amount of money that you will have to pay.
The advantage of this payment plan is that you are able to finish paying of your debt earlier than the expected time without even feeling its effect on your budget. It is as simple splitting you monthly mortgage in a month into two and paying it every two weeks. For example, if your mortgage is a thousand dollar per month, you will have to split it into two payments and pay $500 every two weeks. In a year instead of a total payment of $12,000 on a monthly basis, you end up paying $13,000 without even feeling the difference.
As great as it may sound, it may also has its drawbacks. Bi-weekly which really supports reverse compounding because it’s paid before it’s due. Any extra payments towards principal causes reverse compounding. Some companies do not even approve of bi-weekly payments. Remember, the longer that you owe them money, the more they get to earn from you. Some may accept the payment but they will not apply the payment to the principal. That means that you just paid early but the debt should be computed to be reduced but you might find some discrepancy on the computation. These are some of the few things that you should watch out for.
You may also watch out for companies that charges penalties for pre-payment. Yes, some companies do. Even though you are paying early, you are getting penalized for it. Most mortgage companies do not charge pre-payment penalties, but to make sure to ask your lender because they may be included in some of the few that charge pre-payment penalties. If in doubt, you can always ask the help of experts that can offer other solutions aside from the bi-weekly mortgage acceleration plan. Who knows, you may even end up getting better options.
Attend one of our free webinars to learn how to Super Accelerate the payoff off your mortgage.
