Interest is a wonderful thing when you get it, and very painful when you have to pay it. Chances are you will pay more interest toward your mortgage than all of your other debts combined, unless you get involved in some really nasty credit card debt. If you buy a home on a 30 year fixed mortgage, you will be paying more than the value of your home in interest. If you jump up to a fifty year fixed mortgage, you will be paying four times the amount of your home in interest! This is assuming some very good interest rates as well, if rates were to go up a bit, the numbers would look even grimmer. We are paying a lot of money in interest!
Let’s look at a typical mortgage for $200,000 that gets a loan at 6%. Over the course of a 30 year mortgage, you’ll pay about $210,000 in interest. You’ll pay $600,000 in interest on one of those terrible new 50 year mortgages. There is however a tax deduction on mortgage interest, so you’ll probably be paying about $150,000 instead of the $210,000 in interest. Even with the tax deduction, that’s still a lot of interest!
In the last several years, we’ve had some extremely low interest rates compared to the rest of the century. Rates have hovered between four and seven percent, and we’ve been lucky. There are times when the going rate was in the double digits! If you took that $200,000 30 year fixed mortgage and moved the interest rate up to nine percent, you would end up paying $325,000 in interest!
If you make extra principal payments on your mortgage and pay off your home early, you will save thousands of dollars in interest and will have your home paid off even sooner. If you paid $150 a month extra on our sample $200,000 mortgage, you would save over $50,000 in interest! Imagine how much you could save if you had just gotten a 15 year fixed rate loan in the first place and paid the extra few hundred dollars a month.
You might get an offer from a mortgage company that will give you an accelerated payment program that will let you pay a half payment every two weeks rather than 12 payments a year. This is just tricking you into paying an extra payment each year on the principal; don’t pay the fee to do it. Instead just save up extra money and put principal payments in where you can/
Check and see if your mortgage has a pre-payment penalty, if it does, save up the money and just make a huge principal payment when the prepayment penalty is over. You can find mortgage brokers in Hertfordshire as well that will help you to easily deal with all of your finances. Having the right practice is the key to coping up with all of your payments and bills.
If you can commit to paying extra payments, it will soon be obvious in your mind that you can cut years off your mortgage payment and save thousands in interest. It works, it really does.