The dream of owning a home is becoming very allusive these days. Although everyone would like to have a home that is paid for free and clear, many people are forced to assume mortgages that will be paid over 25 or 30 years into the future.
Everyone is constrained to a certain degree by their budget. Yet there is a way to pay off the existing mortgage on your home quicker and save money in the process.
Almost all mortgages have built into them an Accelerated Payment Clause. This allows the borrower to pay more than the minimum amount of the monthly mortgage payment.
To do this you simply remit more to the lender than the usual mortgage payment every month. The benefit to this is that every extra dollar paid against the mortgage will lower the outstanding balance of the mortgage. This increases the equity in your home faster over time. Also, by lowering your outstanding balance, you will save on interest charges.
Here is a good example based on the scenario of an average family.
If you are an average family of four making $50,000 a year, let us assume that you are saving annually at the same rate as most Americans. This rate of savings as reported by our government is about 4% of your income every year. This would mean that you are putting $2000.00 in the bank every year for future purposes. This comes out to around $167.00 a month.
Right now you are probably receiving less than 1% Annual Percentage Rate (APR) on your passbook savings.
Why not take $100.00 of this money that you would normally save and pay down the mortgage on your home ahead of time? The following example shows why this is in your best interest.
If you take out a mortgage on a house for $200,000 at a 6% fixed rate, and the contract calls for repayment in monthly installments over 30 years, your monthly mortgage payment would be $1,210.56.
If you paid an extra $100.00 dollars per month toward the amortization of your mortgage, you would add $1,200.00 to the equity in your home every year.
In this scenario, the total amount paid to buy your home over the life of the mortgage would be $435,798.89. When you add $100.00 to your mortgage payment every month you would save $46,360.13 in interest charges over the life of the mortgage. You would also be able to retire your mortgage earlier.
You would be able to trim 38 monthly payments off your repayment of the mortgage. So the mortgage would be paid off 3 years and 2 months sooner if you use this repayment method.
In short, what this strategy does is shift your money from passbook savings only ($2,000.00 per year), to paying $1,200.00 on your mortgage, and saving $800.00 directly into your bank account each year.
To sum up the benefits of using this method, the borrower in the example above saved $46,360.13 in interest on their loan, and accumulated $21,923.85 in passbook savings ( $67.00 per month X 1% APR X 322 months ). This equals $68,283.98 in accumulated savings over 26 years and 10 months (This is the actual time it would take to pay off the original 30 year mortgage).
If the family would have put all of their money ($167.00 per month) in a passbook savings account only, they would have accumulated $54,646.35 over the same period of time.
So this family would have actually saved $13,637.63 more by using this accelerated payment method. And they would have also paid off their mortgage 3 years and 2 months earlier than normal.
This method can be used in any situation where the mortgage has an Accelerated Payment Clause built into it. It will work best if you are consistent with the amount that you pay on your mortgage every month. Any change in the amount of monthly repayment of the mortgage will affect the amount that you will actually save.
Check with your banker to find out if your mortgage allows for Accelerated Payments. Then you can use this strategy to save a lot of money on your mortgage and own your home sooner.
Wednesday, January 2, 2008
Monday, December 10, 2007
Debt Consolidation Explained For the Rest Of Us
We've all seen the commercials touting that you can consolidate your debt, get out of debt, and have just one payment. To some people this doesn't mean much, however, when you are paying on more than three credit cards and the annual percentage rate keeps climbing on each of them, this starts to look extremely enticing. Detailed here, we will step through some of the processes that are entailed in this kind of program.
First off, about the commercial that the prospective customer responds to, they are only a middle man. They will collect your debt information, contact information, and have you sign a preliminary contract. Following that, you will be forwarded to the actual entity that will be handling your accounts... so don't waste too much time asking the first contact your questions, as they are likely to tell you what you want to hear - just to get you into the program so that they can get their commissions.
The reality of it all comes clear once you've made contact with the law office that will be handling your case. They will go over the details of how much you owe and to whom it is owed. Once they get in touch with your creditors, the phone calls will begin. Your creditors will be contacting you trying to settle the debts without the new entity (usually a law office) being involved. And, you are told by the law office not to respond to the creditors. It's a hassling couple of weeks until the creditors realize they must deal with the law office instead of you. But, once they get the drift, the calls will stop pretty abruptly.
Given time, your consolidated payment will accumulate into enough money for the law office to offer a settlement to one or more of your creditors. Once the settlement amount is reached for one creditor, the office will contact and ask you if you are ready to settle the debt. And then you begin the process of saving up the money again, to settle your next creditor debt. This continues until all creditors have settled for less than what they are owed... being happy that they got anything at all.
One thing that sometimes is not explained up front, is that the law office is not working for free. They will be charging you a percentage of the amount they saved you, based upon the original debt you came into their program with.
Overall, these programs will save you heartache and money. So, if you are in financial disparity, looking into debt consolidation programs may be well worth your while. Just be sure to change your spending habits to be sure the same debt problem does not happen again.
The key is to live on less than you earn. It really is as simple and plain as that. Take the steps to fix what needs fixing.
First off, about the commercial that the prospective customer responds to, they are only a middle man. They will collect your debt information, contact information, and have you sign a preliminary contract. Following that, you will be forwarded to the actual entity that will be handling your accounts... so don't waste too much time asking the first contact your questions, as they are likely to tell you what you want to hear - just to get you into the program so that they can get their commissions.
The reality of it all comes clear once you've made contact with the law office that will be handling your case. They will go over the details of how much you owe and to whom it is owed. Once they get in touch with your creditors, the phone calls will begin. Your creditors will be contacting you trying to settle the debts without the new entity (usually a law office) being involved. And, you are told by the law office not to respond to the creditors. It's a hassling couple of weeks until the creditors realize they must deal with the law office instead of you. But, once they get the drift, the calls will stop pretty abruptly.
Given time, your consolidated payment will accumulate into enough money for the law office to offer a settlement to one or more of your creditors. Once the settlement amount is reached for one creditor, the office will contact and ask you if you are ready to settle the debt. And then you begin the process of saving up the money again, to settle your next creditor debt. This continues until all creditors have settled for less than what they are owed... being happy that they got anything at all.
One thing that sometimes is not explained up front, is that the law office is not working for free. They will be charging you a percentage of the amount they saved you, based upon the original debt you came into their program with.
Overall, these programs will save you heartache and money. So, if you are in financial disparity, looking into debt consolidation programs may be well worth your while. Just be sure to change your spending habits to be sure the same debt problem does not happen again.
The key is to live on less than you earn. It really is as simple and plain as that. Take the steps to fix what needs fixing.
Debt Stacking - Fast Track Out of Debt
You go to the mail box and scan - a couple fliers (nah), your magazine subscription (yes!) and bills (groan). Every month the bills show up and as you sigh and take out your check book you wonder if you will ever be free.
Each month you pay the minimums and although you KNOW you've got a handle on it - you are not charging your credit card or accumulating new debts anymore - it seems that you will be paying the minimum fees forever.
Did you know that HOW you pay your debts can affect how soon you will finishing paying them off - even if you keep paying the same amount for debt every month? Of course you might be able to get a consolidation loan, but if you're not eligible or are not interested then there are several other things you can do.
It's not always the easiest to figure out the mathematics, but there are three steps to quicker debt relief - guaranteed.
STEP ONE - Create a list.
List your smallest debts first followed by your largest high-interest debts (credit card) and then your largest low-interest debts (Lines of credit and taxes).
Plan to pay the minimums on all debts with these goals in mind:
STEP TWO - Small bills first.
They may not be the highest interest, but every bill that you are paying some interest on means you are usually only paying minimal amounts on the principal. Multiple debts are also a sure way to bring your spirits down. Paying off small debts first is a quick way to start checking them off - and freeing your mind.
STEP THREE - Move the payments along.
When one debt is paid add the funds to the next debt. For example, say you're making $75 payments to a small debt. When the debt is cleared add the $75 to the next debt on your list. If the next debt had a minimum payment of $100, you will now pay $175 until it is paid off. When that one is finished, take the $175 and add it to the next payment and so on.
STEP FOUR - Save the cash!
Don't forget that when your debts are cleared you have set yourself up for a better financial future. The best way to take advantage of your new situation is to use all the money you were spending on debts and start investing or saving it every month.
With this strategy your debts will clear faster meaning you will pay less interest, you will see progress as you clear small debts first, and you will not be tempted to use the funds for personal use instead of debt repayment.
It is a worthwhile goal to get out of debt. Seeing that goal come sooner and teaching yourself discipline sets you up for a brighter financial future. You OWE yourself that!
Each month you pay the minimums and although you KNOW you've got a handle on it - you are not charging your credit card or accumulating new debts anymore - it seems that you will be paying the minimum fees forever.
Did you know that HOW you pay your debts can affect how soon you will finishing paying them off - even if you keep paying the same amount for debt every month? Of course you might be able to get a consolidation loan, but if you're not eligible or are not interested then there are several other things you can do.
It's not always the easiest to figure out the mathematics, but there are three steps to quicker debt relief - guaranteed.
STEP ONE - Create a list.
List your smallest debts first followed by your largest high-interest debts (credit card) and then your largest low-interest debts (Lines of credit and taxes).
Plan to pay the minimums on all debts with these goals in mind:
STEP TWO - Small bills first.
They may not be the highest interest, but every bill that you are paying some interest on means you are usually only paying minimal amounts on the principal. Multiple debts are also a sure way to bring your spirits down. Paying off small debts first is a quick way to start checking them off - and freeing your mind.
STEP THREE - Move the payments along.
When one debt is paid add the funds to the next debt. For example, say you're making $75 payments to a small debt. When the debt is cleared add the $75 to the next debt on your list. If the next debt had a minimum payment of $100, you will now pay $175 until it is paid off. When that one is finished, take the $175 and add it to the next payment and so on.
STEP FOUR - Save the cash!
Don't forget that when your debts are cleared you have set yourself up for a better financial future. The best way to take advantage of your new situation is to use all the money you were spending on debts and start investing or saving it every month.
With this strategy your debts will clear faster meaning you will pay less interest, you will see progress as you clear small debts first, and you will not be tempted to use the funds for personal use instead of debt repayment.
It is a worthwhile goal to get out of debt. Seeing that goal come sooner and teaching yourself discipline sets you up for a brighter financial future. You OWE yourself that!
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