It’s simple to pay down your mortgage and build equity faster by putting away a little extra each month.
If you can afford to put a little extra money towards your mortgage, this is an excellent way to save money. Your equity will grow faster and your loan term will be shorter, saving you thousands of dollars over the life of your loan.
Take a look at this example of a $400,000 30-year fixed-rate mortgage loan. By making the equivalent of one extra mortgage payment per year, you’ll pay off your home almost five years sooner and save over $67,000 in interest over the life of the loan. Using your actual mortgage balance and our “What is the Impact of Making Extra Debt Payments?” calculator, you can estimate how much time and money you could save.
Several big banks offer a biweekly payment plan that requires an enrollment fee – sometimes as much as $500. However, it’s simple to manage yourself with a savings account, automatic transfers and a little discipline.
There are two ways to accomplish your goal. Simply divide your monthly mortgage payment by 12 (months) and add that amount to your payment each month. The additional payment amount will go towards principal.
Or, you can instead set up a secondary savings account to house your extra payment. Using BranchLine, you can even do it yourself by clicking on the “Open Account” tab. Divide your mortgage payment by 12 and schedule an Automatic Payment to transfer this extra amount monthly. In the above example, you’d set aside $179 to your new savings account each month (or $90 twice a month if that works out better for your paycheck.)
At the end of the year, simply make one principal-only payment using the money in the account. You’ve just shortened your term, lowered your balance and earned a little interest at the same time. It’s that easy!
For more information or to speak with a real estate representative, call (888) 858-6878, ext. 6220.
by Hemlata, AVP, Real Estate