Save Thousands on Your 30-Yr Mortgage

Posted on 09/26/08 7:18 AM

If you have a 30-year mortgage, you might want to consider this simple “trick” that has gained popularity in recent months and can save you thousands of dollars...

Simply pay an additional month per year! It is an old trick and not really anything revolutionary, but on a 175k loan* it could save you more than $40,000 dollars over the term of the loan. What’s new is that lenders are becoming more lenient in allowing extra payments. They have removed some of the pre-payment penalties that didn’t allow for more than 10% of the loan to be paid in a given year. Some lenders will structure loans so they are paid bi-weekly allowing for a 13th payment a year which will reduce a 30-year mortgage by about 7 years. In a bi weekly payment plan you are not changing your current loan.  What you are doing is changing the way you pay your loan.  Instead of making one payment every month for a total of 12 payments per year, you are halving your monthly payment and making one payment every two weeks.  The benefit to the borrower is that they will be making 26 payments per year which ends up being the same as making 13 regular monthly payments per year. Generally the lender will request that the bi weekly payments be deducted electronically so payment deductions are consistent through out the year.

If the ability to make bi weekly payments conflicts with pay periods, then the borrower has two more simple options. The borrower can add an additional 1/12th of the monthly loan amount to each month’s payment or pay a lump some at the end of each year and achieve the same results. Each loan is structured differently with potential pre-pay penalties. Consulting a lender before paying extra is highly advised.

Note: In order to build equity in your home more quickly, you must have a lender that will immediately credit each 1/2 monthly payment upon receipt. If your lender waits until the second payment has been received before crediting your loan, you’ll never see the benefits.

Calculate Your Savings Here.

*(Loan parameters: 30-yr fixed, excellent credit, 80% LTV, 6% interest rate, APR 6.1%)

This tip was brought to you by Chris Hanson , Mortgage Consultant (OR ML#1952) with Mortgage Express. Chris can be reached at 503.517.2424 (phone) or 503.520.0620 (fax).

Subject to program availability and client qualification.  All associated terms including, interest rate, APR, fees, and terms are subject to change.  Equal Housing Lender.