My Insurance Insider and Finance Blog

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Dreaming of owning a home of your own? May be you’re. But acquiring a dream home is becoming very illusive these days. Everyone would like to have a home that is paid for free or mortgages that had paid over 25 or 30 years.

It’s true everybody is guided to some extent by their budget. There is a way to pay off the existing mortgage on your home quicker and save money in the process.

Most of the mortgages have a built-into Accelerated Payment Clause. This allows the borrower to pay more than the minimum amount of the monthly mortgage payment. The benefit of paying extra dollar against the mortgage will actually lower the outstanding balance of the mortgage loan. This increases the equity in your home faster over time. Thus lowering your outstanding balance, you will save on interest charges.

Let’s suppose you are an average person earning $50,000 a year, and you are saving at a rate of about 4% annually. This means that you are putting $2000.00 in the bank every year that translate into around $167.00 a month on your passbook savings with less than 1% Annual Percentage Rate (APR).

So, if it is the case, why not take $100.00 of this money that you would normally save and pay up the mortgage on your home ahead of time? How about paying off the full $167 ?

If you take out a mortgage on a house for $200,000 at a 6% fixed rate, and the term of repayment in monthly installments is over 30 years, your monthly mortgage payment would be around $1200

If you pay an extra $100 dollars per month for the amortization of your mortgage, you would be able to add $1,200 to the equity in your home every year. Just imagine how much could you have accumulated over the same period of time, if you have put all of your money i.e. $167.00 per month to your home equity?

In this instance, you had to pay $432,000 to buy your home over the span of the 30 years mortgage term. And when you add $100 to your mortgage payment every month you would save $46,300 in interest charges over the mortgage period that helps you to clear off your mortgage earlier.

Thus you would be able to trim 38 monthly payments off your repayment of the mortgage. So the mortgage would be paid off approx 3 years before your scheduled time.

The strategy here is to transfer your money from your passbook savings ($2,000.00 per year), to paying $1,200.00 on your mortgage, and still saving $800.00 each year.

This method can be used in any situation where the mortgage has an Accelerated Payment Clause built into it. It will work best if you are consistent with the amount that you pay on your mortgage every month. Any change in the amount of monthly repayment of the mortgage will affect the amount that you will actually save.

It is recommended to check with your banker to find out if your mortgage allows for Accelerated Payments. Then you can use this strategy to save a lot of money on your mortgage and own your home soon.