Do you want to know how to turn a 30 year home mortgage into a good deal for you? First and foremost, it depends on your goal. If your goal is to own the house outright, then pay more principal in the early part of the note. Why? Because your interest per payment goes down the more you have paid off of the principal.
If you look at the amortization schedule of any mortgage loan, interest payments are front loaded. This means, that you pay a lot of interest in your standard monthly payments in the first years of your mortgage loan. This also means, the further you get into your loan payment, the less you have to pay. One way to do this quicker is to pay more on the principal earlier. This will ensure that you will remove more payments (and the time it takes) to pay off your house.
This one tip is critical to understanding how doable paying your house off early is. The more mortgage principal you pay down early, the more you can move through the cycle of payments, and the more you can reduce your years of paying on the loan.
30 year mortgage loans are great because they lock in a monthly payment for the lifetime of a loan. But, if you pay the minimum amount on the loan every month, you actually end up paying a lot of extra payments to the bank. You could actually end up paying double what your house cost when you bought it. So, your total payment is a lot more.
Refinancing is the Bank’s Cash Cow
Most home buyers who don’t understand this, only look at the monthly payment. They aren’t thinking about the long term amount that they are paying the bank. In most cases, mortgage loan brokers offer refinancing options so homeowners can reduce their monthly payment or pull money out of their home’s value, if the home appreciates over time, to lock in a lower interest rate or to lock in a lower payment for the buyer. What they know and buyers don’t is that, if you commit to paying the loan down early, you will end up paying much less over the lifetime of the loan, and you will get out of the loan much quicker. Essentially, refinancing ensures that you will pay a lot more interest to the bank.
If you are discouraged that you have a large mortgage loan, you can look and see how much interest you plan to pay on your house. If you commit to paying extra monthly, especially in the early years, you can see your monthly payments decrease astronomically. My family made it a goal to celebrate every time we paid off one page of our 7 pages of amortization loan payments. We paid off our home in less than 8 years! It’s actually very possible to pay off your home in 7 to 8 years when you buy what you can afford at your current salary. By doing this you aren’t presuming on the future, you are taking control of it. Presuming upon the future is where people get into trouble.
What we found is that once we started paying down the interest early, we made so much traction that later when we were tempted to quit paying extra, we did not have peace about it. We had already made so much progress, to stop would have been to punish us even more, because we would postpone not having a mortgage at all. And the real benefits of homeownership are only realized once the loan is paid off and you actually own the home.
This kind of delayed gratification is frustrating for most investment bankers and ‘professional’ investors. They typically look at creative financing options to give people more money now rather than having to wait until later. Most self-proclaimed investors don’t care how much loan payments they have as long as their cash on hand covers their loan payments. To them this is the good deal. But beware this is not a good deal! This is the kind of trickery that most ’so called’ investors are up to and it is all about instant gratification and money greed. This stuff is risky and could actually cause you to lose more in the long run.
I’m not always against creative financing, particularly for a business. But you will always have to have some sort of collateral in case you can’t pay your bills. I am not a fan of creative financing when it comes to your primary home. This is your shelter. What I am about is a life of freedom to choose where you spend your income and to be a good steward of the money we’ve been given. I think a primary way you can do this is to make a plan to pay your house off as quickly as you can so that you don’t have to be indebted to a bank and have your personal shelter liable.
I get so irritated by government and bank officials who are trying to figure out how to remove student debt or ensure that everyone makes more money (which in reality only makes money for them and reduces the working person’s value of their dollar). They suggest they are helping others but they are actually reinforcing bad choices. There is so much money in America and most of the economy is playing with fire because they don’t understand how to use it. Many don’t think they have a way out of all of their bills. The real problem is that they have not ever how to be responsible and won’t ever have a plan – they just simply spend everything they make without a thought. But there is a way out of this cycle of money madness. It’s through getting your net worth to $0. Did you know if you have debt, you actually have a negative $0 net worth? Get your personal finances at $0 by paying off all of your debt. Then you can actually accumulate value – whether it is money or assets or whatever form of gain you choose. And you will have the foundation to have self control, not focused on instant gratification.
You can pay off your house. It is possible for those who make a plan and stick to it. We did it and you can do it too!