Saving Money Over The Long Term

As the summer selling season comes up, so do most people's mortgages. Is your ARM about to expire? Is your fixed rate coming to an end? Here's something to think about, as you shop for your next mortgage.

The interest you pay on your mortgage can double the cost of your home. Let's look at an example: a "typical" 25 year mortgage on a $300,000 home will cost in the neigborhood of $200,000 in interest costs at the current rates. That means your home will REALLY cost you $500,000. (Didn't know you were living in a half million dollar home? Apparently, you are richer than you think!)

How do you avoid putting all that money out? You take advantage of the typical mortgage features: double your regular payments (if you can); pay down extra money on your mortgage's anniversary date. If you can, make the maximum extra payment on your anniversary date, which is usually between 10 and 25 percent of your original mortgage amount. This alone can make a huge difference.

When negotiating your mortgage, go for as much flexibility and as many options for extra payments as you can. It makes it easier to take advantage of extra cash that you've got -- before it finds another use! My mortgage is considered as "open" as possible, in that we can walk in the door of our lender and put down any amount of money on our mortgage at any time. We could even pay it off if we had the money -- but we'd have to win the lottery first. However, we've just put $4,000 on it, and we'll likely take our tax return this year (we're getting money back) and put that immediately on our mortgage. If we continue to put these kinds of payments against our mortgage over the next few years, we'll be mortgage free long before our oldest child is in high school.

If you actually double your payments and pay off an extra 15% of your mortgage every year, you can turn a 25 year mortgage into a 5-6 year one. And just think about what you could do with that mortgage payment in your pocket every month?


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