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Tips for Saving a Big chunk of Money - Could shorter mortgage save you Money? |
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Are you planning to buy a home? Ask your financial institution to give you a comparative figure by shortening the amortization period from say 30 yrs to 20 yrs. You will be surprised the see the difference you will be paying in interest. |
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| Author: Shailendra Jain |
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Here it is what you would save, if you are paying the mortgage of $ 400,000 at 5 % in 20 yrs instead of 30 yrs by increasing your monthly payments.
Years 30 yrs 20 yrs
Monthly Payment $ 2616.04 $ 3108.57
Total Interest $ 361,189.80 $ 227,224.18
Total Payments $ 761,189.80 $ 627,224.18
The saving in interest, if you pay off you loan in 20 yrs instead of 30 yrs is $133,965.62
Ouch!!! It’s a big chunk. It makes financial sense to pay down your mortgage as quickly as you can.
When you first buy a home, the money is often tight and it certainly makes sense to take 30 years amortization period as the monthly payment is low. However, as years go by the salary also increases and most home owners find that they can afford larger monthly payments.
Alternatively, there is another sensible approach of taking 30 years mortgage, but try and make one extra monthly payment each year. It can save you that extra money and ultimately yield the same benefit as 15 years mortgage loan. And this approach will also help you with fewer burdens if changing circumstances reduce your ability to make monthly payments.
The approach of paying every 2 weeks instead of monthly payments can also save. If you are paying every two weeks you will make an additional monthly payment each year (26 bi-weekly payments vs. 12 monthly payments). Also, because you are paying the principal down every two weeks rather than every month your interest charges will be reduced.
Moreover, you can also start putting some extra money towards your mortgage whenever you have a raise in your salary put that extra money towards prepayment of Principal. And the same rule applies towards any bonus received in that year. This bonus portion will go straight towards principal repayment.
Use your income tax return to put a lump sum payment towards your mortgage. This is extra money that is not used in your monthly budget.
These tips can surely give you extra saving and can reduce your mortgage.
About Author
SJ Chartered Accountant;
Serving Mississauga, Toronto, Etobicoke for Tax, Accounting, Audit and Advisory.
http://www.jainfinancial.com
info@jainfinancial.com
Ph: 416-622-1221
Article Source:
http://www.1888articles.com/author-shailendra-jain-47174.html
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