If there is one question I get from current home owners the most, it would be 'What is the best way to pay down my mortgage?'. With all the choices, it can be a tough decision. I spoke with one of my preferred lenders, Mark Olson on the subject and he told me this.
We all want to save money. The obvious way is to just spend less. But sometimes you can only sustain the super-frugal lifestyle for so long before your family revolts. Your mortgage can offer you a less painful and somewhat subtler way to achieve your long-term savings goals.
Making additional monthly principal payments on your mortgage is one of the best ways to save money over the long term. Let’s look at an example, a $100,000 30 year fixed-rate loan at 5.5%:
The monthly principal and interest payment on this loan is $567.79 and as a 30 year loan it would pay off completely in 360 months. If the homeowner paid just $100 per month toward principal reduction, the loan would instead pay off in 254 months. The extra costs would therefore be 254 times $100 or $25,400. The savings however would be 106 months times the $567.79 or $60,185.74. That is a savings or almost $35,000. An extra $200 per month yields even bigger savings. The loan would pay off in 199 months and the total savings would be over $51,614.
It’s not hard to see that a larger loan balance with larger monthly (additional) principal reducing payments will lead to even bigger savings. So if you want to save more money, long-term for retirement or college funds, then look no further than your mortgage.
If you are going to purchase or refinance a home or if you have questions about your mortgage or financial matters, you can contact Mark Olson at Fairway Mortgage. His number is 972-899-5153 and his email address is marko@fairwaymc.com.
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