A Penny Saved is a Penny Earned

A Penny Saved is a Penny Earned -
Benjamin Franklin

Saturday, January 23, 2016

Mortgage Savings

I've posted this before but it's worth taking a look at again.
I managed to pay off my mortgage in a relatively short period of time. I started by paying off smaller debts (and car payment) and using the monthly payment amount I had been making to those debts toward the mortgage.
Home Sweet Home on a HillBut don't just pay the money here and there, put together a plan. Having a goal makes it easier to say no to a large cost item and focus on paying off debts. There are many programs that can help you. I prefer to have an overview of what I'm trying to accomplish and I set up a spreadsheet on Excel that showed how long it would take to pay off my mortgage following the above plan of using the amount I had previously been paying monthly toward other debts. You can download Excel spreadsheets here. If you have a fixed rate mortgage choose Extra Payments on Monthly Payment Fixed-Rate Mortgages 
On a $100,000 loan your interest at 5% will be over $40,000 for a 15 year loan. Early mortgage payoff calculator here.

Bankrate has numerous calculators you can use to see how making additional payments will lessen the length of your loan. Check here.

Payoff calculator at Loan Shoppers

Loan Amortization Table here
But if that seems to be a long way down the line, interest rates are considerably lower at the moment and moving to another mortgage may reduce your monthly payments.
Refinancing - The recommendation is that if the new mortgage isn't at least one percent lower than your current mortgage you won't be saving anything. Don't just assume you will be saving money, even with a lower interest rate, calculate closing costs, points etc. and see how much it will add to your principal. Also remember that you have already been paying on the loan so going from 11 years on your current loan to a 15 or 30 year mortgage might lower the monthly payments, but will cost you long term.

Note: For some reason many advisers recommend not paying off a mortgage for tax savings. I've never understood the logic of this. Yes, you may save by itemizing instead of taking the standard U.S. tax deduction, but it may not be more than paying the actual mortgage interest. If you are considering hanging on to the mortgage for tax purposes, compile a tax return with mortgage interest and one without, you may find out that you aren't saving anything by itemizing. Also compare tax savings with the amount of interest paid that year.

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