Adding just a few dollars to each mortgage payment can save thousands in interest
If you obtained a mortgage recently, there’s a good chance you’d like to pay it off as soon as possible. If you obtained a mortgage in the past 5, 10 or 20 years, there’s a good chance you, too, would like to pay it off as soon as possible. Well, accomplishing that feat may be easier than one might think. The key is to add a few extra dollars to each mortgage payment.
For newly minted mortgagors (mortgagees make loans - mortgagors make the payments), the most efficient route to take is to begin adding additional dollars with the first payment. As illustrated in the accompanying table, a borrower who adds just $100.00 each month to his or her scheduled monthly payment on a $200,000 mortgage at 6.0 percent can save in excess of $49,000 over the life of the loan and shorten the loan term by just over 5-years. Increase the additional payments to $200.00 each month and the interest savings rises to just over $80,000 and shortens the loan term by almost a decade.
Borrowers whose loans have been in place for years or decades may want to approach their early payoff possibilities from a different direction. Wouldn’t it be great if one could calculate how many additional dollars per month would be required to retire the mortgage on a date certain? Well, there’s an app for that. The folks at FinancialMentor have created an easy-to-use online calculator (https://financialmentor.com/calculator/mortgage-payoff-calculator) that allows users to determine exactly how many dollars to add to each monthly payment in order to achieve a zero-balance at a time that’s most advantageous to them. The process is as simple as entering a few numbers into the calculator.
The first step is to enter your current loan balance (the age of your mortgage is irrelevant). Step two is to enter your interest rate. Step number three is to type in the principal and interest portion of your monthly payment. The final step is to enter the number of years from now you’d like to be mortgage-free. The calculator will then display exactly how much you’ll need to add to each monthly payment to achieve your payoff goal.
As an example, a property owner who owes $150,000 on his or her 4.0 percent mortgage that carries a monthly principal and interest payment of $835.00 would have to add an additional $683.68 to each payment in order to achieve a zero-balance 10-years from now. In addition to retiring the mortgage early, the move would save our fictitious borrower $46,920.89 in interest.
If adding dollars to your payment each month puts a strain on your budget, you can also achieve your goal by adding lump-sums from time-to-time. Income tax refunds and employment bonuses can be applied annually and will achieve the same result.
Paying off your mortgage is beneficial in many ways. In addition to saving thousands of dollars in interest charges, the dollars that went to pay the mortgage can be redirected to savings or other investments (or a casino). And keep in mind that paying no interest is far better than the tax deduction mortgage interest provides.
See you at closing.
Gary Sandler is a full-time Realtor and president of Gary Sandler Inc., Realtors in Las Cruces, New Mexico. He loves to answer questions and can be reached at Gary@GarySandler.com or 575-642-2292
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This article originally appeared on Las Cruces Sun-News: Adding a few dollars to mortgage payment saves thousands in interest
