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"Taking the Mystery Out of Mortgage Acceleration"

Introduction
I get e-mail every day from people who have been confused by all the bi-weekly mortgage hype. They've read my article "What's the Big Deal About Bi-Weekly Mortgages?" and have decided not to use a bi-weekly payment service, but they are still not sure where to start. So, the purpose of this article is to provide you with some ideas on how to get started and just as importantly, how to stick with it.

Getting Started
This is by far the toughest part of starting a mortgage reduction program. I tell everyone who asks this question the same thing. The absolute first thing you need is a plan. It doesn't have to be a detailed plan that takes days to prepare, but the more complete and accurate the better. Your plan should include you having a clear understanding of how paying extra principal payments affects your mortgage, how much you can afford, or a mortgage payoff goal date, and the payment method that will work best for you. Don't worry, we'll go over all of this and more, in detail, a little later. Without a plan, you are much less likely to start or continue a mortgage reduction program. If you are not already one of the thousands of satisfied Mortgage Minder users, now would be a great time to download and install the trial version. It doesn't cost anything to try, and I think you will soon agree that it is an invaluable tool to help you plan and implement a mortgage acceleration strategy. Enough of the sales pitch, let's move on...

How Extra Principal Payments Affect Your Mortgage
So you've heard about bi-weekly payment plans, or someone told you how to cut years off your mortgage by paying extra principal payments, but your not sure you understand or believe their claims. Now what? Let's use an average mortgage, say $100K at 9% for 30 years as an example. The payment on this mortgage is $804.62 using the US calculation method. Out of each payment, a portion goes to pay for the interest and the rest goes towards the principal. The part that goes towards the principal reduces the amount that you owe on your mortgage, the balance. The interest goes directly to the mortgage company. That is the part they get for loaning you the money. Most mortgages start out with most of your payment going to pay the interest and very little going towards the principal. As time goes on more and more goes towards principal and less to interest. This is clearly shown when you look at an amortization table, such as the one provided by Mortgage Minder. For example, out of your first $804 payment in the example above, only a little over $54 went towards the principal. That means almost $750 was paid as interest the first month. One would think that this ratio would even out to a point where you are paying equal amount towards principal and interest around the 15th year of this 30 year mortgage. The fact is, it is nowhere near the 15th year! Only after 268 payments (over 22 years) do you start paying more towards principal and less towards interest. This is why I tell people, you still owe half of what you borrowed, $50K in our example, after paying payments for 23 years! Don't believe me, download Mortgage Minder and see for yourself. It takes 23 years to pay off half of a 30 year mortgage. Here's why..

Interest is calculated on the remaining balance of your loan. So the higher the balance, the more interest you must pay. In the beginning, since most of your payment is interest, the principal balance creeps down very slowly, which means you still pay mostly interest from consecutive payments. Eventually, you get to a point where you are paying mostly principal and the principal amount is reduced more rapidly. Since your payment stays the same, the less you pay in interest, the more you pay towards principal, and the faster you pay down the balance which reduces the amount of interest you pay from the next payment. That's why after 23 years, you are able to pay off the second half of the mortgage in only 7 years. Look at the amortization table in Mortgage Minder, paying particular attention to the principal, interest, and balance columns.

You should see by now that since the interest amount of each monthly payment is calculated on the remaining balance, the quicker you pay that balance down, the less interest you will owe. What if you paid an extra $100 dollars towards the principal on your first payment? That means the interest for not only the next payment, but every payment after that until the end of the mortgage will be calculated against an amount $100 less than it would have been had you not made the extra payment. Translated, a single $100 extra principal payment, knocked almost 2 payments off your term and saved you over $1,300 in interest. Download Mortgage Minder and see for yourself. What if you paid that extra $100 every month? You'll save over 10 years and $75,000 in interest!

Decide How Much You Can Afford or Define a Payoff Goal Date
What is your goal? Is it to pay off your mortgage as soon as possible, or by the time the kids are ready for college, by your 40th birthday? Or maybe you just want to pay a set or variable amount extra each month. For example, you may want to make a commitment to pay all or a percentage of your overtime pay towards the principal amount each month. This is a completely personal choice on your part and is going to be to some degree controlled by how much money you have to work with. If you know you only have $100 each month to pay towards the principal on your mortgage, then your decision is much easier. However, if you want to pay your mortgage off by a certain date, you will have to calculate the extra monthly amount needed to achieve that goal. This kind of number crunching can get ugly, but Mortgage Minder can handle this and more with ease and incredible speed. If you haven't already done so, download and install the demo right now and get started immediately.

As I mentioned before, this is going to be different for each person and you should be realistic about your goals. After all, if money was not an issue, you probably wouldn't have a mortgage in the first place, or you would pay it off in six months. So with that said, be realistic about the amount you can afford to send in extra each month.  Plan for those unexpected expenses and don't strap yourself too tight.  In a way it's like a diet, if you don't ease into it, you will quickly get discouraged and most likely go back to making minimum payments, defeated by your mortgage company.  Make it a family affair, create and share your goals with your spouse or other close family members.  Make it fun, enter your extra payments into Mortgage Minder each month and watch your balance drop like crazy.  Then look at all the money in interest you have saved!

Figure Out What Works For You
Over the years, I have talked to a lot of people about how they come up with extra money to pay towards the principal on their mortgage, and the methods they use to do so. Again, these are just guidelines and are going to depend completely on how disciplined you are. Some of these ideas may work for you as is or may inspire you to come up with your own method.

The DIY Bi-Weekly Payment Plan
One of the most common and talked about methods of paying your mortgage off early is the bi-weekly payment plan. There are companies that specialize in selling you on this idea and help you to implement it by automatically withdrawing your money from your account every two weeks. Those of you that have read some of my other article know that I am not to fond of using these services. But, the basic idea is still solid. If you get paid every two weeks, this may be the plan for you. If you would like detailed info about bi-weekly payment plans, read my article "What's the Big Deal About Bi-Weekly Mortgages". Basically they work like this; you pay a "half" payment every two weeks instead of a full payment every month. Since there are 52 weeks in a year, or 26 bi-weekly periods, you end up making the equivalent of 13 monthly payments. For some people, they will not even realize that they paid the extra amount, making this a very popular method. That's also why companies that specialize in bi-weekly payment services can make you think your payment did not increase, but that's another article.

With this do-it-yourself bi-weekly payment plan, there are a couple of things you need to be aware of. Your mortgage company will most likely not accept your "half" payment. Most of them will only accept an amount equal to or greater than the monthly payment. So, here is one way around it. Set up a separate checking account for mortgage payments. Now, every two weeks when you get paid, write a check for the "half" payment and deposit into your mortgage account. When the monthly payment is due, write a check out of the mortgage account for the monthly payment or ask your mortgage company to automatically deduct your monthly payments from that account if you want. After six months of this you will notice that you have an extra "half" payment in your mortgage account. So when you pay the sixth monthly payment, write the check for the extra amount as well. You'll notice the same surplus every six months. In our $100K example above, this payment method will save you over $60K in interest and cut over eight years off your mortgage.

Another twist on this, which in my opinion requires a bit more self-control, is to just use an envelope to hold the mortgage money. Every two weeks you put half the monthly payment in an envelope marked "Mortgage". When the payment is due, take the money out and pay the monthly payment. After six months, you have the same surplus mentioned above, etc., etc.

I'm sure you get the idea by now.  The bi-weekly payment services claim that more than 80% of the people out there will not be disciplined enough to maintain this payment schedule on their own.  Perhaps that is why there are so many of these providers?  I'm not sure.  I know I do not use a service like this, but I am also starting to realize that not everyone thinks the same way as me.  For what it is worth if using a bi-weekly payment service is the only way you can stick with a mortgage reduction plan, then by all means write them a check!  You will easily save far more than the cost of the service in interest.

Overtime - Second Job - Second Income
Some people make a commitment that all money from a certain source will be used to reduce your mortgage. For example, one guy told me that 50% of his overtime pay goes directly to the mortgage company. Then there was the young lady who told me about her small business selling products via home parties. She didn't make a lot of money at it, but she put every dime towards extra principal payments each month. She told me she looked at it as mortgage money, not regular money. She may have worked about 40 hours or so for about $200 or so which comes out to around $5 per hour. I don't know the specifics about her mortgage, but if you use the $100K example above, and she applied the $200 the first month, that $5 per hour in regular money just became over $67 per hour in mortgage money! Use Mortgage Minder to figure it out for yourself.

Spare Change?
This has to be one of the oldest tricks in the book, but it just keeps coming back. Probably because it works for some people. Basically, the method here is to never spend your change. Only spend paper money. So if you buy a paper for fifty cents and use a dollar bill to pay for it, then later you buy a pack of gum for a quarter, don't use any of the change you got from the previous purchase. Use another dollar or other "paper" money to make the purchase. I think you probably know where this is going. At the end of the day, you throw your change in a jar, box, drawer, whatever. You will be surprised how fast you come up with an extra $20 - $40 each month. Think it won't make that big of a difference? Use the $100K example again and add $40 each month. Your spare change is no worth more than $24,000!

Misc.
There are hundreds of ways to save money.  Hopefully some of the ideas above will get you started with your very own plan.  Remember, from now on when you purchase that extra can of pop from the machine at work, that's mortgage money you're spending.  A glass of water would be much better for you and in a way you're even paying yourself to drink it!  So, how much would a $0.75 soft drink every day save you over the term of your mortgage?  Download Mortgage Minder and figure it out!

Don't Put it Off.  Get Started NOW!
One of the most important things to remember is that the sooner you start the more you will save.  This goes back to the previous discussion we had on how interest is calculated on the remaining balance.  The longer you wait the more months that go by where interest is being calculated on a higher balance.  Every dollar you pay towards the principal this month is worth more than it will be next month.  So don't wait.  Do some investigation on your own.  Use Mortgage Minder to pay a single extra payment on the first payment, and note your savings.  Then start over with the same loan amount and make the same extra payment, but this time make it a year later on the thirteenth payment.  Now note you savings, still not bad, but not as good as it was a year ago.  If paying off your mortgage early is your goal, then there is no better time to start than with your next payment.


Mortgage Minder Software Can Help!
I designed Mortgage Minder to calculate the effect of making extra principal payments. So for those of you that have ask why it does not support bi-weekly payments, I think you know the answer now. The truth is, it does support the bi-weekly payment structure described above, I just don't call it bi-weekly anything. Once again, most bi-weekly payment plans are actually monthly payments with an extra principal payment every six or twelve months. Using Mortgage Minder, you can easily simulate this by adding an extra half payment every six months or an extra full payment every twelve months.

Mortgage Minder was designed for people like you and me, not for mortgage professionals who can calculate this stuff in their sleep. Mortgage Minder is very powerful and feature rich, yet easy to use and understand. It lets you know instantly, and in plain English how much you will save using a certain payment plan. You can even save several different plans to compare savings potential or save different loan information for multiple properties. You can print reports, compare payment tables, calculate a certain payoff date, add a single extra payment or automatically repeat an amount every so many months. Mortgage Minder supports US and Canadian calculation methods and fully supports variable interest rate mortgages. Download the demo right now and give it a try! We all have software to keep track of addresses, taxes, bills, pictures, our health, our schedules, our kids, our pets, and anything a person can think of to collect, and even more software to print labels, write checks, send faxes, chat with people you don't even know, etc., etc. Isn't it time you had software to help you manage what was probably the single biggest purchase of your life, software that puts YOU in control of your mortgage reduction strategy? Software you will use today, next month, and next year. If you start a plan today and stick with it, your small Mortgage Minder investment will still be paying off several years from now in the way it allows you to track and print your progress over the years. If you move or get a new mortgage, Mortgage Minder is ready to go, just type in the new loan information. Mortgage Minder keeps you motivated when you track your progress, it's easier to continue when you can see the results. It is very important to get started ASAP. The longer you wait, the less you will save! Get started NOW!

I have given you all of the information you need above to avoid the bi-weekly payment services and save thousands in interest by paying additional monthly principal payments yourself. You do not have to have Mortgage Minder, but if you are serious about a mortgage reduction strategy whether you use a bi-weekly payment service or not, I think you will find it to be an invaluable tool at a very modest price.

Thousand of users since 1995 have discovered the benefits of using Mortgage Minder. Isn't it time you do the same? I get email from customers all the time, some of them have been using Mortgage Minder since the first release. If you are serious about planning and implementing a mortgage reduction strategy, you will use and keep on using Mortgage Minder. Or, if you are just kicking the idea around, Mortgage Minder is still well worth the price to give solid, easy to understand, accurate, answers. It is not one of those programs you use once and then never go back to (you know the ones I mean).

Mortgage Minder comes with a 100% money back guarantee. If you are not completely satisfied for any reason, remove it from your system and I will refund 100% of the purchase price, no questions asked. You have nothing to lose.

Download the fully functional trial version and give it a try.

Then, when you are ready you can purchase Mortgage Minder on-line using your credit card and get a code to unlock the demo version instantly! No waiting for the UPS truck, you get it NOW!

Please feel free to send your comments on the above text to feedback@mortgage-minder.com Your feedback is very important and greatly appreciated.

 

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