Saving / Making Money from your Mortgage

As much as this may not sound like you are making extra money, I would disagree. To me if I can save money in the long run by putting more money in your pocket or not spending as much, then it’s just like making extra money! I’m going to share some tips I’ve used to save me a tonne of money on my mortgage thus far. If you follow these simple steps you will save anywhere from a few hundred to a few thousand dollars or more depending on where you are in your mortgage! The first thing I would suggest is you get an amortization payment schedule for your mortgage so you can see exactly how much money you are paying in interest and compare how much of that you can save with my tips below. You can get this schedule from you lending institution or go to ??? and put your mortgage details in here for a schedule. Okay, now let’s save some money!

1. Set your mortgage up for bi-weekly payments. This will shave almost 5 years off a 25 year amortized mortgage because you end up making 1 extra payment a year compared to monthly. Let’s say you mortgage payment is $1000 a month. If you are paying monthly, you would make 12 payments of $1000 for a total of $12,000 a year. If this is set up bi-weekly, you would make 26 payments of $500 for a total of $13,000 a year.
   
   
2. Make a lump sum payment. Most mortgages will allow you to make yearly lump sum payments to some degree. My mortgage will allow me to pay up to 15% of the principal amount yearly. If you receive a tax payment or some other form of payment that may not be expected (I.e. Inheritance, lotto winning, etc) be sure to place some or all of it towards your mortgage. This is even more effective if you have a newer mortgage because mortgages are front loaded with interest. What I mean by front loaded is that most of your payment in the early part of a mortgage is interest while in the last few years most of the payment is going to principal. Banks aren’t stupid and they are also money hungry PIGS if you ask me so they ensure they get their interest early in case something was to happen down the road! As I was saying, these lump sum payments will go directly against the principal amount which can save you a tonne in interest of the years to come because every payment you make after the lump sum, more of these payments will go towards the principal. Let’s go through a scenario. Assume a mortgage amount of $200,000 amortized over 25 years at 6% making monthly payments. Let’s say 8 months into the mortgage you got a tax check back for $2000 and applied that to the mortgage. This would save you $6544.68 in interest payments and pay off the mortgage 6 months earlier! Imagine if you could apply a lump sum each year…you could pay off your mortgage in half the time!
   
   
3. Round up your payments! That’s right, you can save a good chunk of money by rounding up a few dollars. I had a mortgage payment of $710.88 which I rounded to $725. The extra $14.12 per payment is now going directly to the principal. This will save me a few thousand bucks if I start this early on!
   
   
4. Keep you payments the same if mortgage rates fall. If you are accustomed to paying $700 bi-weekly and you new mortgage rate lowers your payments to $675, keep paying the $700. Once again, the extra $25 each payment will go directly to the principal saving you a bunch in interest.
   
   
5. Increase your payment if your income increases. If you receive a raise each year, I would suggest increasing your mortgage payment by that amount, unless you require the money elsewhere. This will have the same affect as the above scenarios. This year I received a raise that was equivalent to just over $2000. I divided this by 26 (this is the # of payments I make per year as I pay bi-weekly) and increased each payment by $79.18. This will shave a chuck of payments in the long run.
   
   
6. Increase your payment to the most you can afford. If you can afford to pay an extra $5 of $50 per payment, do so! I can’t put it any other way.

Here is a very interesting concept that a friend has introduced me to. I’m about half way through the book and really like the idea and what I’ve seen so far.

Craig Romero is the author of “Mortgage Cycling Revealed”. Craig is a mortgage expert and reveals how to pay off your mortgage in less than 10 years using his Mortgage Cycling process. Click here to learn more.