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Reducing the cumulative interest on your mortgage
Let's assume that you have a
$100,000.00 mortgage at 7.5% for a period of say 25 years. The
monthly payment will in this case be $731.55 in Canada (or
$738.99 in the USA). By the time your mortgage is fully paid,
your total payments are about $220,000. (i.e $100,000 for the
principal and $120,000 for interest.)
This $120,000 can be reduced significantly by using the
following strategies.
Lumpsum payments.
If you inherit money, get a bonus, get a tax refund or win in a lottery, consider making a lumpsum payment on your mortgage. Most financial institutions allow you to do this at least once each year. A $20,000 lumpsum payment after 5 years will shorten your mortgage to about 17.5 years and your interest saving will be more than $46,000. You don't have money for a lumpsum payment and your mortgage is locked in at a high rate? In that case, consider borrowing your lumpsum payment if the present lending rates are low.
Increasing payments.
If you increase your monthly payments by 3 % every year, this $100,000 mortgage will be paid off in 16.17 years and you would save $41,520 in cumulative interest. (Canadian mortgage).
Additional payments.
You can make the equivalent of an additional payment by switching to bi-weekly payments where each payment is half the monthly payment. This way , a 25 year mortgage will be paid off in approximately 20 years.
Shop
for the lowest available interest rate.
If you are able to reduce your interest rate by 0.5 percent, your 25 year mortgage will be reduced to 22.5 years and the cumulative interest will be $ 25,000 lower. A 0.5 percent lower interest does not seem much, but as you can see the savings are significant over the duration of your mortgage.
A
combination of the above
Combining the 3 % per year increase in payments and the $20,000 lumpsum payment will reduce the mortgage to a little more than 13 years and save you $62,242. Of course you should subtract the cost of Mortgage Wizard Plus registered edition (US $27.00) from these savings in interest.
The example presented here shows you how you can shorten any mortgage or loan. Use the editing capabilities of Mortgage Wizard Plus, and become smart about mortgages. You will soon discover how you will be able to crush your own mortgage faster. At the same time you will save thousands of Dollars, Euro's or whatever currency is applicable to you. MW Plus is a tool that most likely can save you more than any other program presently installed on your computer. Investing in your principal residence makes a lot of sense in Canada. The interest on a mortgage for a personal residence is in Canada not a tax deductable expense. And investing in your own home is a low risk and tax free way of saving. If you live in a country where the interest on your mortgage is tax deductable, you have to look at your after tax savings. You may want to save your MW-Plus Year End reports in a format for export to your favorite spreadsheet program. You can then find out what your after tax savings are, based on your tax bracket and assumed future earnings. Remember MW Plus is just a tool. You still have to make your own decisions based on what makes sense to you and what you are able to do. You can always use the equity in your home as collateral for subsequent investments.
Enjoy the program, start to create
wealth and retire earlier!