Mortgage Acceleration - Part 2 - The strategy

How to cut your mortgage in half

Having analyzed the benefits of paying your mortgage off early, lets move on to the mortgage acceleration strategy.

There are actually several ways to pay off your mortgage early; this is one of them and you can do it on your own. It would help you to get an amortization schedule which you can get from your Loan Officer or Bank, and they are also freely available on the internet
(one site is http://www.hsh.com/calc-amort.html, enter your interest rate and the month your mortgage started in the calculator, and select "Show full amortization schedule"; print it out). This strategy is actually very easy to implement as you will soon see.

As we discussed before, the interest on a mortgage is, in fact, compound interest. You will pay most of the interest (and a small portion of the principal) in the early years, and most of the principal (and very little interest) towards the end of the mortgage.

On our $200,000 loan example, at 6% (fixed rate) over 30 years, with a payment of $1,199.10 (principal and interest), it would look like this:

First 6 months, 2007 - $1,199.10 payment

Last 6 months, year 2036 - $1,199.10 payment

This chart is a tiny part of an amortization schedule, and shows the interest portion and the principal portion of each payment, which in this case is $1,199.10. We included the last 6 payments of the 360 payments (30 years) so you can see how little interest is paid at the end of the mortgage. Most interest is paid at the beginning.

Now look at the first chart so you can follow the strategy: When you make your January payment for $1,199,10 you also include the portion of the principal for the following month, ($200.10) to be applied towards the principal (make sure you make it clear, otherwise the Bank may apply it to your impound account). What you are actually doing here is you are paying the February payment in full with only $200.10! This way you won’t have to pay interest on those $200.10 when making the February payment. Now in February you still have to send a payment, so you send the March payment (you already paid for February) and also include the $202.10 for the month of April, to be applied, again, towards the principal. So again, you are paying one full month (April) with only $202.10. Your monthly payment is $1,199.10, but by sending $1,401 you are paying 2 months! This is incredibly powerful; you are actually moving through your mortgage twice as fast, and saving an amazing amount of money in interest.

Let's go through the process, step by step.

1- January 1st, you send $1,199.10 + $200.10 (February's principal), $1,399.10 total.
You just paid for January and February.
2- February 1st, you send $1,199.10 (for March) + $202.10 (April's principal), total of $ 1,401.20. You just paid March AND April.
3- March 1st, you send $1,199.10 (for May) + $204.13 (June's principal), total of $1,403.23. You have just paid May and June. So far, you just paid half a year worth's of mortgage in only 3 months! See how powerful and simple this is? By paying $606.33 you saved $2,990! This is almost 500% return on your money. And, best of all, this is incredibly fun! Imagine how you will feel by following your amortization schedule and seeing how much money (BIG money) you are saving! And the feeling of being mortgage free is unlike any other; you are in control.

Now, we based this example at the beginning of the mortgage to make it easy for you to understand the process; you need to get an amortization table based on your actual mortgage and follow along based on the month you are in. If you are at month 21, you start there. The sooner you start applying this strategy, the more money you will save. Even if your mortgage is 15 years old you will still be able to save a lot of money and pay it off sooner.

Continue to do this every month, and you will never have to pay interest on the principal that has been pre-paid. Consistently following this strategy will allow you to pay off your 30-year mortgage in 15 years or less, and you will save an unbelievable amount of money in interest. After your mortgage is paid off, you can move up to another house and rent the old one, and that rent money you receive could be paying your new house. After 30 years, you own TWO houses, both paid off, and you only paid for one (the other can be paid by your tenants!). See now why we stress that paying off your mortgage is a great investment?

Now, look at how we lay down a program to pay ALL your debts, including your mortgage, even faster...

Home | Your first step | Budgeting | Debt Consolidation | Debt Reduction | Credit Cards
Fico | Home Loans | Mortgage Acceleration | Mortgage Acceleration Strategy |
Car Loans | Student Loans | Bankruptcy | Resources | Get our of debt |
| Contact Us | Site Map