Are You Rich Enough

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Are You Rich Enough

Are You Rich Enough To Give Your Lender a $100,000 Tip?

by: Heather L Giles

 

Borrowing money costs consumers more these days than ever before. Not many people can afford to fork over 100,000 in cash for a home. A very small percentage of the population can do this. The rest of us rely on our sweat and brains to get us through and make it happen. The little guy will always struggle since the rich get richer and the poor get poorer. With the current legal pirating going on these days in the mortgage industry, personal budgets tighten as consumers walk the tightrope of income versus expenses to make ends meet. The rising prices of gas and food items only add to the crunch most families feel in today's world. Purchasing a home for your family does not necessarily strain your budget if you apply this simple but important principle to a seemingly complicated issue. The basic idea here involves paying your lender extra payments called advanced principal payments. This concept will shave years and thousands of dollars off your mortgage costs. While a spreadsheet program helps to determine principal and interest payments, your amortization sheet will do for a ballpark savings. The key to this relies on sending in your next months principal along with this month’s payment. So, if your monthly payment costs 700 a month, for this payment, 75 dollars for principal, and 625 for interest, follow your amortization chart until you find the month you owe now, and see the principal cost for your next month’s payment. Add this amount as extra principal to the payment you send. The difference can range to a few cents to a couple of dollars for your next months principal. So for this payment, you send in the 700, plus 76 as advanced principal payment. You just saved yourself 624 in interest, and knocked off a month from your mortgage. Let’s recap with a real life example. You purchase a house for 100,000 with an interest rate of 6.5 percent. You finance it for 30 years. The first 2 years of your loan results in payments of 12,859.20 in interest, and 2310.19 in principal payments. If you apply the technique of advanced principal payments, at the end of your first year you will pay 6,432.72 for interest, 2310.19 in Principal, and reduced your loan time by one year. The extra payments for one year cost you an extra 600 or so, but save you 6426.48 in interest. All together you actually save 5826.48 in interest. Not sending in extra principal payments will cost you a total of 127,000 in interest over the life of the loan. Your 100,000 house ends up costing you 227,000. By applying this simple idea to the lifetime of your loan, you will potentially shave tens of thousands of dollars off of your mortgage costs, and also get your deed years earlier without being tied to the much higher 15-year mortgage loan.