It’s the Principal of the Thing

Many people think they’ll have a house payment and a car payment for the rest of their lives, but it doesn’t have to be so with a plan and a little discipline. The plan is to make additional principal contributions to a fixed rate mortgage to shorten the term and save tens of thousands in interest. 65125303-250.jpg

If a person were to make an additional $100 payment each month applied to principal on a $175,000 mortgage, it would shorten the loan by five years six months. If the person were to make $200 a month additional payments, it would shorten the loan by 9 years. $459 additional payment would shorten it to 15 years.

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If a person does make a decision to regularly pre-pay their mortgage, it will be their responsibility to verify that the lender is applying the money to the principal each time as opposed to being placed in the reserve account for taxes and insurance. An advisable practice is to write a separate check for the principal pre-payment and note it as being specifically for that purpose.

In today’s market, a savings account pays around 0.5% or less. Even with the low mortgage rates available, there is still a considerable savings. People who might need the funds in the near future should carefully consider this option due to the less liquid nature of equity in one’s home. However, if the equity in your home as a percentage of it’s approximate value is significant, say at least 10%, having a Home Equity Line of Credit (HELOC) which many mortgage lenders offer their borrowers, can be an excellent emergency resource. The interest rate and terms for HELOCs are typically very competitive and offer numerous advantages over other types of credit instruments.

Make your own projections using the Equity Accelerator.

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