3 Little Changes That Will Make a Big Difference
Buying Down Your Interest Rate
A lower interest rate saves you money on your monthly mortgage payment, but it will also cut back the amount of interest you will pay over time.
Compare the difference in monthly payments and total interest paid on this $200,000 home loan example.
$200,000 loan at 4.25%
Monthly payment (not including taxes and insurance) = $983.88
Total interest paid = $154,196.73
$200,000 loan at 4.00%
Monthly payment (not including taxes and insurance) = $954.83
Total interest paid = $143,738.99
You may be thinking that an extra $30 a month isn’t much. But over the 30-year life of that loan, you will save over $10,457 in interest!
Paying, for example, $2,000 at the beginning of the loan saves you over $10,000. If you invested that $2,000 in a savings account with today’s average APR of 0.45%, you would only make about $288 in interest in that same period.
At Shop Your Own Mortgage, we use our commission to buy down your rate to save you thousands of dollars!
Increasing the Frequency
The most gratifying way to bring down the principal balance on your mortgage loan and shorten the total length of time you pay it for is to switch from monthly to accelerated bi-weekly or even weekly payments. Here’s what that looks like.
In the above example of a $200,000 mortgage, your monthly payments would be $983.88. If you simply switch to a bi-weekly arrangement, your payment is calculated as $983.88 × 12 months/26 weeks = $454.10. You would save a little in interest, but you could save more by making accelerated payments.
Accelerated bi-weekly payments are calculated like this: $983.88 × 12 months/24 weeks = $491.94. Your payment is slightly higher, covering the equivalent of a 13th monthly mortgage installment every year. Over time, that makes a substantial difference. In this example, it saves $15,393 in interest and shrinks the amortization period by almost three years.
Making Lump Sum Payments
Making lump-sum payments of just $2,000 per year on a $300,000 mortgage would save you $17,774 in interest and allow you to pay off your mortgage six years sooner, assuming a five-year fixed-rate mortgage at 2.99 percent interest rate and a 25-year amortization.
With our technology, you have the power to choose your best mortgage with flexible terms from a network of over 25 lenders to apply the strategies above to save thousands of dollars and be mortgage free sooner!