The 1 Thing You Should Change on Your Mortgage Today
I just got off an email and I couldn’t wait to share it with you. I was being interviewed on paying off our mortgage and I have to get this out quickly.
The question went:
“When you switched from a 30 year to a 25 year mortgage how much did your payments go up and how much did that make in your interest savings over the mortgage?” – JC
First a bit of background
We paid off our mortgage in 6 years. In doing so, we used a lot of tactics and tricks to beat our mortgage into submission (yikes violent description). A lot of them are mortgage specific, we had a lot of options on our mortgage.
That means the terms on your mortgage would dictate if you could or couldn’t do these types of tricks.
However, there is one trick that everyone can use regardless of their situation.
The 4 Parts of a Mortgage that Matter
When it comes to a mortgage there are a few things that you can change, if you change one then something else changes. They are:
- Amount of the loan/mortgage
- Rate of Interest
- Amortization of the loan (length of time to pay off the loan in full)
If you change one of these, then one (or more) of the others change too.
For instance, if your interest rate goes down, then you get a lower payment.
If you increase your payments, then the length of the loan goes down.
All pretty standard stuff, but I wanted to get it out of the way.
So here was my reply to that earlier question.
“I’m doing great! Thanks for asking. Our regular payments increased by about $70 bi-weekly switching from 30 to a 25 year amortization. The interest difference was huge!!! Over 30 years the interest would have been around $313,000 switching to a 25 year the interest was $252,000. So, around $61,000 in savings over the life of the mortgage from making that change.” – Andrew
Change the Amortization Period
If you are able to change the amortization period on your loan, it would do you well to cut down the length of the loan (Amortization period). This is going to save you tons down the road.
The one number no one wants you to look at
When you are getting a mortgage everyone focuses on one thing.
It makes sense, this is what is going to affect your day-to-day living. But what I was strongly suggested to do and what I’m even happier I did it looking back was look at your interest over the life of your mortgage.
The One Thing That No One Wants You To See
Buying a house is a big deal. It’s a rite of passage for many, and it’s the North American dream to own your home. But the cost of that dream is often ignored.
If I had stayed with a 30 year amortization. I would have paid nearly the same amount of interest as my principle.
That meant my mortgage would have cost me $633,000 and not the $320,000 I originally signed up for. That’s a lot of interest when you think about it.
That’s nearly double. That’s ridiculous.
By changing my mortgage from a 30 year to a 25 I saved $61,000 over 25 years. (That would be awesome for our Save the Savings Challenge). All for an extra $70 every two weeks, which is about the cost of a fancy coffee every day.
For those of you wondering if you cut your amortization to the following numbers this is what savings you would have on a $320,000 mortgage with 5 % interest rate.
|Amortization||Increase in bi-weekly payment||Interest Savings|
Anyway I’m glad I got this out, if you are looking for away to save money I hope this helps. It may be hard to find that extra money every couple of weeks but boy oh boy does it add up over time.
What do you think? Let me know in the comments below.
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