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ARTICLES
Save
Thousands Without Really Trying!
Did you know
that pre-paying your mortgage can save literally THOUSANDS
of dollars!! You may think that 10% or 15% annual pre-payment seems
highly unlikely for you to be able to achieve. You may even think
that a 10% down payment might not be worth bothering about. BUT
DON'T THINK THAT WAY! One simple example will serve to illustrate
the point that a small pre-payment CAN make a big difference.
For instance,
a homeowner who decided to put aside 70 cents a day, could save,
in excess, of $13,000 during the lifetime of his mortgage. Sounds
impossible? Read on, unsuspecting reader!
Let's assume
that you, a homeowner, borrows $100,000 at 8 1/2%, which is amortized
25 years. Your monthly payments of principal and interest would
be $795.36. If you shorten the amortization to 23 years, your
monthly payments increase by 21.09 per month, amounting to $5,820.84
over 23 years. However, you saved 2 years of mortgage payment,
totaling $19,088.44 for a net saving of $13,267.60.
Keep in mind
that the increased payment to shorten the amortization amounts
to only 70 cents a day. As you can see, small outlay in pennies
on a daily basis, can make an awfully big difference in the long
run.
Reducing
the principle
The key element
in pre-paying your mortgage is to reduce the principal balance
during the early stages, thereby reducing your amortization period.
The reduction from a 25 year amortization to a 23 year amortization,
costs less than the equivalent of one extra payment per year as
you witnessed above. If you were just to make one extra monthly
payment per year, the amortization would be reduced to about 18
years, from 25! By making two extra payments each year, the amortization
would be down to approximately 15 years and three extra payments
would further reduce your loan to less than a 13 year amortization!
I don't know about you, but these are the kinds of things I'd
want someone to tell me before I signed on the dotted line.
"Why
should you even bother?"
Maybe some
of you reading this are asking yourselves, why bother to prepay
the mortgage? Presumably your salary will increase each year and
the value of your home should also increase over the years. The
payments are affordable and the present interest rates are quite
reasonable. BUT... think of the opportunities awaiting
you because you've prepaid your mortgage. You can now begin a
new lifestyle, free of those monthly mortgage payments and you're
secure in the knowledge that you'll always have a roof over your
families head.
If you so
choose, the equity that has built up in your house is now available
as collateral for future loans for investment or other purposes
which may allow you a tax deduction. By careful planning, you
should be able to increase your net worth at a faster rate than
someone saddled with mortgage payments for 25 years, simply because
they'll have more liquid (available) cash at an earlier date.
For further
information, please contact us at your
convenience.
GRG
Financial Services Inc.
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