- HubPages»
- Personal Finance
Mortgage Payoff
The budget and the size made a difference when you bought the house.
Six Little Pigs
Three little pigs went to market.
Three little pigs stayed home.
Which were the girls, and
which were the boys
really doesn't matter;
though a clue: girls like to shop.
Each couple had a payoff plan.
One couple liked minimums
stretched out as far as possible.
One couple liked short term,
and paying it off fast.
The other couple?
They paid extra when they could,
and didn't worry when they couldn't.
All were free to choose.
Which system do you use?
And, who had the most fun shopping?
Save with a "just right" house with a "just right" mortgage.
Just a suggestion, but it works.
It's a simple mortgage payoff strategy that works when you want to, and it doesn't obligate you any more than you have already obligated yourself. Why not give it a try?
The three couples of the "Six Little Pigs" had three separate plans for paying off their mortgages, and there are many more ways to do it.
This article is a suggestion that follows the way of the "pay extra when you can, and don't worry when you can't" (pay extra, that is) method.
The photos at the right contain some commentary of different homes and different considerations, but what follows is the gist of the "pay extra when you can" approach.
Whether you have mortgage payment coupons you send in with your check each month, or receive monthly (or even biweekly) mortgage statements and billings, each one shows what is paid toward principal, interest, and escrow.
The important figure is the amount that goes toward principal. That is what is paying off the mortgage at a regular monthly amount.
In the months when you can, make an extra payment of that principal amount. By doing so you are reducing the principal balance by an extra month's payment, which also reduces the interest owed on the balance.
Doing that every month, if possible, would mean paying of the principal in less than half the time, while also reducing the total amount of interest paid on the mortgage.
There may be circumstances which could make it impossible, or simply unwise, to make the extra payment for one or more months, but some good will already have been done.
Resume the extra payments when you can, and know that in reality you are paying yourself by every month earlier the mortgage can be paid off.
The interest savings alone will shorten the time needed to pay off the balance of the mortgage.
While personal circumstances could dictate refinancing the mortgage, or investigating a reverse mortgage thoroughly, your regular payments and extra payments can improve your credit rating and make it easier to arrange other special purchases such as a replacement vehicle, solar paneling, and an addition or renovation, etc.
Give this method of payments your consideration, and see if this suggestion makes sense for your mortgage payments.
It just might make a lot of cents and dollars in your pocket.
An Added Note:
Mortgage lenders receive an "annual bonus" whenever a mortgage's escrow account has a shortage at the end of the year. "As a legal courtesy" the lenders will simply roll that shortage into your balance due on the mortgage, and increase your monthly payments accordingly,after also increasing the required escrow for the coming year.
If you just let that shortage add to the balance due on the mortgage, you may find that it equals several months' worth of payments toward the mortgage's principal, actually lengthening the mortgage, and the amount of interest payable on the mortgage.
Be prepared to pay that shortage as soon as possible to avoid those outcomes, and the avoidable increase in the cost of the mortgage.
____________
© 2017 Demas W. Jasper All rights reserved.
A happy home takes more than money.
____________
© 2017 Demas W. Jasper All rights reserved.
Comments
- Author
A separate section has been added to this article to cover annual shortages in a mortgage's escrow account. If the mortgage has such a shortage, work to pay that off as soon as possible, to avoid increasing the total cost of the mortgage for the reasons given.
- Author
MizBejabbers - That just confirms the value of this approach to anyone's mortgage payoff. Thanks for the added comment.
- Author
Jodah - Good luck with your new property. Keep in touch.
When I bought my first home as a single mom in 1980, I managed to make one extra payment. That one payment shortened my loan by about six months. That proved to me that it works. Good advice, Demas.
Funny you should ask that Demas, as we have just signed a contract on a new property and had a mortgage loan approved. So your hub is very relevant. When it was 2am at your part of the world it was around 7.30pm
- Author
I wish I could make an equally good suggestion on how America could reasonably pay off its nearly $20 Trillion national debt. Think of it, that's a 2 followed by 13 zeros each one of which increased the previous number by ten times that earlier amount! Lord help us.
- Author
Jodah - Thanks. It's so nice to have someone awake somewhere in the world who can comment on an article I post at almost 2:00 AM here in America where American readers are in dreamland!
This has worked for us too, and makes a real difference. I know it can work for you too.
February is just around the corner. what will February bring for you?
Good advice, Demas. We intend to do just that.
8