Learn More About Mortgage Payments To Save Money
For people buying Fairfax VA homes for sale, this mortgage strategy will save you tens of thousands of dollars on your mortgage, build your net worth and equity faster and pay off Fairfax VA homes in almost half the time.
There's a fistful of ways to do this, but there's only one right method.
This little heard of mortgage detail is one that most Fairfax VA home buyers don't understand, and one most lenders don't advertise. Still, if you do it right, bankers will have to make it for you.
Learn More About Mortgage Payments To Save Money
After obtaining a mortgage, your monthly payment is really made up of four things:
- Principal - the amount you borrowed and will have to pay back.
- Interest - loan interest.
- Taxes - yearly real estate taxes paid into the monthly escrow account.
- Insurance - annual hazard insurance policy also paid into the monthly escrow account.
The first two, Principal and Interest, compose the majority of the monthly payment. Using a $200,000 mortgage at 6.5% amortized over 30 years as an example, the monthly payment will be $1,264.14 but may go up to $1,500 if Taxes and Insurance are added.
However, though the payment amount of $1,264.14 stays the same every month, the Principal and Interest portion constantly varies every single month.
Almost all of the first few payments only pay off Interest. This is known as a front-end loaded mortgage or standard amortization schedule. Over 30 years or 360 months, $1,264.14 every month means a total of $455,090, which means you'd pay $255,090 in just interest alone.
Approximately 85% of the initial monthly payments will be purely mortgage interest, and only 15% going toward reducing the principal of the amount you have loaned.
That's $1,085 in interest, and only $180 counting towards the principal. Seems very self-defeating, right? Next month won't be any better, as the interest portion will go down by about a dollar, while the principal reducing goes up a dollar.
This process goes on throughout the mortgage, and with a standard 30 year mortgage, the original mortgage of $200,000 you loaned won't even be half-paid until the 22nd year.
So how can you pay less on your mortgage on Fairfax VA homes for sale?
Well, we showed that a standard 30 year mortgage of $200,000 at 6.5% amortized for Fairfax VA homes actually gets you to pay an interest of $255,090. In order to save thousands of dollars, you may pre-pay the small Principal part of your monthly mortgage payments per month.
Why? Because doing so properly will mean the bank has to waive all the interest associated with that advanced payment. Here's an example:
Say January 1 is the due date of the 1st payment. Added to the monthly payment of $1,264.14, you also add enough to pay the next month's principal portion of about $180. Then because you've paid that portion of borrowed money for the full term, your lender can't ask you to pay the full interest.
They'd have to waive $1,080 in interest connected with the pre-paid principal for February. This is huge, huge savings!
Using this exact process of paying the principal portion of your Fairfax VA homes' next monthly payment will allow you to have your lender waive the interest associated with that next monthly payment. So on February 1, you'd have paid the first 2 months, but per your mortgage agreement, you're still required to make a normal monthly payment.
So you pay $1,264.14 again, however this one goes toward the 3rd payment in the amortization schedule. You'll also make a principal pre-payment towards the 4th month, which means the lender has to waive another $1,080 in interest. So 2 months living in your Fairfax VA home and you've paid off 4 months worth of payments without actually doubling up on the amounts! That's $2,160 in interest saved!
Now look ahead to the future and you'll see that by being twice as far ahead every month, you would have reach payment number 360 in 15 years time.
Meaning, you'd have paid off your loan in half the time and save$113,361 in interest savings! Plus, you won't have to worry at all for the next 15 years, since you don't have to make payments anymore and can do other things with your money as you wish.
Take note though, that you have to do this the right way to make sure your lender doesn't "weasel" out of their obligation in saving you this money on your mortgage interest.
Take advantage of my free, live Online Webinar to understand how to implement this money-saving strategy the right way!
Tips For Saving Money on Real Estate Buying
If you are up to saving money on home buying, be well aware of certain facts. Purchase a house only if you are sure enough to live there for several years.
Or else, it can be expensive for you. Purchasing home and then selling them with a profit requires good understanding of the real estate market trends. So, take up the idea of purchasing property only if you are well aware of the ups and downs of the market trends.
In case you are interested in buying home to stay, the following tips would help you to great extent.
Fix the amount of money that you would want to invest for real estate. To determine the amount the thumb rule is two-and-one-half times your annual salary. You may use better tools to calculate the amount for investment keeping in mind the income, debts, and expenses.
Rehearse well on how you would negotiate to get the best deal for real estate buying. The deal should be based on the sales trend of similar homes in the area. Check out the sales prices of the houses of the last three months.
Though Internet is a good guide for you to get all the listings and the current rates of real estate buying, but engaging a professional agent would definitely make your work lot easier.
He would help you in the bidding process for the best possible real estate deal. If you find that the price of the recently sold homes is 5% less than the asking price, you bid for 8 to 10% lower than the price quoted by the seller.
Property Loans
To save money, you may go for home loans. A home loan would help you to get a home of your own and pay for it in reasonable installments. Home loans come along with huge tax concessions. Compared to other forms of loans the home loans would help you to evade tax payments to great extent. Lets see how.
You would get tax deduction amount on the repayment of the principal amount of the loan that is granted to you for purchasing a house.
The rate of interest paid on the loan is deductible from 'income from property', even if the amount is not paid during the year.
Even the interest paid for a fresh loan which is taken to repay the old loan is also deductible.
So, taking home loans are quite useful for saving money on real estate buying.
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