How To ‘Cheat’ On Your MortgageTypically when a person talks to their banker about mortgages, most often the discussion revolves around having a standard monthly payment with an amortization of 25 years. For a $500,000 mortgage at a 3.19% interest rate, that would mean your mortgage would be paid off in full by the end of the 25th year!
However it also means that you would have paid the bank back $725,000 over that 25 year period - $500,000 in principal loan repayment AND $225,000 in interest payments!
There are several, almost secret, options available which will reduce the total interest you pay and in one case substantially reduce the interest paid by over $55,000 in the above example.
First off, let me say this. Almost every bank has these options but they aren’t usually talked about unless you ask questions. The sooner you can start increasing your principal repayments, both in size and frequency, the more interest you’ll save.
This is because any mortgage payment is comprised mostly of interest during the first five to ten years. However, any extra payments you make, over and above the regular payment, go directly to a reduction of the principal balance owing.
The first option that you can use is to change your payment method from monthly to accelerated bi-weekly. That means you take your monthly payment, divide it in half, and pay that amount EVERY 14 DAYS. By doing this you will make 26 payments per year and reduce the amortization significantly down to 21.8 years and save you about $30,000 of interest.
Don’t take the regular bi-weekly option where you pay on the 1st and the 15th day of the month... 24 payments during the year. This method DOES NOT shorten your amortization so we don’t recommend it at all.
Another option is to pay weekly ... divide your monthly payment by 4 and pay that amount every 7 days ... thereby making 52 payments during the year. This does shorten the amortization down to 21.5 years. Since this is not a significant improvement from the accelerated bi-weekly option, we suggest just to stick with the ‘every 14 day’ payment schedule.
Many banks will also allow you to ‘double up’ your bi-weekly payment and also make lump sum payments annually totaling up to 10, 15 or 20% or more of the original principal amount. You can take advantage of any of these pre-payment privileges without any penalty whatsoever.
You can also start off your mortgage with a shorter amortization. That means you will pay a higher monthly or bi-weekly payment but you WILL pay off your mortgage sooner and save lots of interest. The only disadvantage with this is that if something happens to your income... you lose a job or get injured... you cannot then make the amortization longer to reduce your payments. You’re locked in.
We suggest that you set your mortgage up at the beginning for a 25-year amortization. Then take advantage of all the pre-payment privileges that you can!
The most dramatic way to save interest on your mortgage, and cheat the bank out of literally tens of thousands of dollars in interest, is to use our trademarked ‘Mortgage Terminator Program’.
This Program shows you how to pay your mortgage off in just 10 years... without you winning the lottery! There are two simple steps... First make sure you’re making your payments accelerated bi-weekly which reduces your amortization to 21.8 years. The second step is to increase your accelerated bi-weekly payment by 10% each and every year.
OR… not as good, but better than doing nothing - pay a lump sum every year on the ‘anniversary’ of the mortgage starting. If you paid $3,000 per year, your amortization would be shortened to 19 years and you’d save $55,000 of interest. If you paid $5,000 per year, you’d be down to 18 years and a saving of almost $66,000 in interest (total interest paid over the 18 years = $159,000).
The best part of any of these options... they’re all legal and no special permission is required to invoke any of them! Don’t pay the banks any more interest than you have to.