Payoff Your Mortgage Loan Early and Save Money

You can save a substantial amount of money by paying off your mortgage early. Adding a little extra money to your mortgage payment every month will take years off your mortgage and save you a lot of money in finance charges. It's a common misconception that you have to make large payments like $300 to $500 each month to get the balance paid off early. As little as $50 extra per month could take years off a mortgage depending on the terms and conditions of your mortgage.

Let's look at an example. If you have a mortgage balance of $165,000 with an interest rate of 7 percent and monthly payments of $1097.75, for 30 years, you will pay approximately $230,190 in finance charges, ($1097.75 x 360). The total amount of your loan will be $395,190, ($165,000 + $230,190), over the 30 year period. You can check these figures by using a mortgage calculator.

Now using the same figures lets see what happens when an additional payment of $50 is added to the standard mortgage payment of $1097.75. This makes the new payment $1,147.75. You will now be free of your mortgage in 26 years instead of 30 years. The amount of finance charges you pay is now $194,902.99, which equals a savings of $35,287.01, ($230,190 - $194,902.99). When you don't have a mortgage payment it makes a big difference with your budget. You have $52,692 extra over a four year period to do with as you please, (48 x $1097.75). The money that was going towards your mortgage can be used to invest, save or pay down other debts.

We can use the same figures and look at an example using an additional $100 payment. Your mortgage will be paid off in 23 years instead of 30. The total amount of finance charges you pay is $170,157.42. You will now save $60,032.58 in finance charges, ($230,190 - $170,157.42). An extra $100 per month takes seven years off your mortgage.

Using the mortgage calculator you review several hypothetical situations. What happens if you make a one time payment of an additional $2,500 on your mortgage? What happens if you pay an additional $1,000 in May of every year that you have a mortgage balance outstanding? Use the mortgage calculator link below to insert your figures. This will help you determine how much money you can save based on your own goals.

The methods above describe how to payoff your mortgage early but you may want to review your financial game plan to see if this makes sense. There could be other ways to make use of your money instead of paying off your mortgage early.

Many lenders assess a prepayment penalty, but you probably don't have to worry about that because they are usually in effect for the first 3 to 5 years.

http://www.bankrate.com/calculators/mortgages/mortgage-calculator.aspx Mortgage Calculator

http://articles.moneycentral.msn.com/Banking/HomeFinancing/DontRushToPayOffThatMortgage.aspx Author: Liz Pulliam Weston, "Don't Rush to Payoff That Mortgage".