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SHORTEN
THE AMORTIZATION PERIOD
One typical way of doing that is to shorten your
Amortization period of a mortgage which is easily
described as "the number of years it will take
for you to pay off the principal amount borrowed
from a lender, plus the interest it accrues based on
the current payment amount plus interest rate. Of
course, if you shorten the amortization period you
will have higher monthly mortgage payments, but you
will pay significantly less interest over time.
Let’s say, on a mortgage of $100,000 at 6%
amortized over 25 years and you changed the
amortization time to 20 years. The result would be a
savings of about $21,000.
MAKE BI-WEEKLY PAYMENTS
Ask if you can adjust your payments from monthly to
biweekly on that same $100,000 mortgage. At 6%
interest rate you could save up to about $600 alone
in
interest costs over a five year term.
PREPAY
ON THE PRINCIPAL
Ask if you can prepay up to 15% of the original
principal amount of your mortgage without penalty
each calendar year in amounts as low as $100. For
instance, on a $100,000 mortgage at 6% interest,
amortized over 25 years you make a 2% lump sum
payment each calendar year for five years. Beginning
on the anniversary of your mortgage you would save
about $1,300 in interest costs alone over the five
year term.
DOUBLE
YOUR PAYMENTS
Ask also if you can double up on your payments. Here
is an opportunity to reduce your mortgage
significantly. As an example, you would increase
your payments once each calendar year to a maximum
of 100% over the term of your mortgage.
Make sure to ask your lender if you can have the
flexibility to choose to lower the payments back to
their original level during the same term. Typically
then, on a $100,000 mortgage at 6%, amortized over
25 years with a 10% increase in monthly payments at
the beginning of the term would save you over $600
in interest costs over a five year term. |
