Use Your Mortgage Payment to Best Use of Your Hard earned Dollars


by Steven Passarell - Date: 2006-12-20 - Word Count: 527 Share This!

Home ownership; it's the great American dream. Along with the dream comes a nightmare, the mortgage payment. We all know that basically we get a payment based upon the interest rate, the mortgage amount, and the term of the loan. At the term's end, we will have paid off the loan in full. But, what is the cost of the original mortgage amount? Using a mortgage amount of $97,000, an interest rate of 7.25% for 30 years, the payment is $663.00 per month. Multiplying the payment times the number of months we get a figure of $238,000, the amount paid for a mortgage of $97,000. Is paying off a mortgage in the traditional fashion the most efficient use of the homeowner's money? To that question I would have to answer resoundingly NO! What most people do not realize is that in making monthly, (or periodically), additional principle payments the mortgage's term can be reduced significantly, and will save the homeowner thousands of dollars.

First, let's break down the mortgage payment. The payment consists of the principle, the interest, and the escrow amount, (if any), For the purposes of this article, we will not discuss the escrow part of the payment again. We will only be concerned with the interest and principle part of the payment. Keeping in mind the old adage that if you make your regular payment, plus the principle part of your next payment, you take one payment off the end of your term.

You should have received an amortization schedule at closing, unless you have an adjustable rate mortgage, (ARM). If you did not get one at the closing, or can't find yours, call the mortgage company and have one sent to you. When you have your schedule, look at it, you will notice that it is broken down into how much of each payment is to be applied to interest, and to principle. You will notice that at the beginning of the term, the interest payments are very high, and the principle payments are very low. Month-to-month during the term of the loan the interest payments get lower, and the principle payments get higher. At the term's inception it is much easier to make the next month's principle payment in addition to the current month's payment. But, you don't need to always make the next month's principle payment to reduce the term of the loan, and significantly impact the effectiveness of your money.

Using the example of a loan amount of $100,000, and an interest rate of 7%, and a term of 30 years, the payment would be $665.30. The payment times the term, (360 mo.)would mean that $239,508 would be paid over the life of the loan. If the owner makes a nominal extra principle payment of $20 per month, it reduces the 360 month term to 328 months. The total paid to the bank would then be $224,798, ($665.30 X 328). That would save $14710 for paying an extra $20 per month. The extra paid would be $6560. the resulting return on investment would be 44.5%.

When you invest in a home get the maximum return on your investment and pay extra principle each month.


Related Tags: investment, loan, mortgage, interest, payment, personal finance, amortization, principle, home ownership

Steve Passarell is the owner of Custom Club Creations, a golf club fitting and building facility. He has over 15 years of experience and has had extensive training by some of the industries best experts. His philosophy on custom clubs is to offer the best quality products at prices that all golfers can afford.

Contact Steve at steve@clubfitter.com, http://www.clubfitter.com

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