To own a home
is an American dream. Besides making an individual's life more fulfilling,
a home (and a mortgage) also keeps the US economy rolling.
Once your American
dream is fulfilled, it creates a sort of drain on your finances.
Majority of Americans borrow significant amount to finance the purchase
of their home. This results in monthly mortgage payment, annual
property taxes, possible HOA dues etc. Most of us are not aware
but we end up paying several hundred thousand dollars as interest
payment on the money we have borrowed (mortgage)
On next few pages,
we attempt to help you save with your mortgage payments.
The purpose of this
page is to play around with some numbers and to do some financial math
that can help you save some money.
MORTGAGE TIP 1:
Mortgage payment voucher
comes in the mail every month with a due date of 1st of the month but
did you know that you usually get 15 days of grace period to make your
payment? I believe most of us pay on the 1st itself. We don't care of
15 days worth of holding onto our monthly mortgage payment. Now if you
decide to delay your payment by 15 days each month, what kind of benefits
do you have? Most of you would immediately tell me that it is not worth
the trouble. But if you try to put some financial sense into this, I am
sure you will get surprised by the magic of compounding.
If you don't care about
paying 15 days late, I am sure you can stretch yourself and pay 15 days
earlier too. I mean to say that if you are planning to pay your next mortgage
payment on say 1st of May, please pay it on 15th of April instead and
then on every 15th of the month. Now the payment you make on 15th of April,
mark it as payment towards your principal. Do you know how much wonders
this will do overall?
Let us run some numbers
on the following scenario:
Assume this is your
You are supposed to
pay 2398 every month till January 2038:
Now instead of paying
on the 1st, you change to pay it on 14th of the month and somehow squeeze
in one payment by paying it early towards your principal.
Do you know that this
"15 days doesn't matter" would save you full 5 monthly payments
at the end? Plus, $2000 on the last payment you make?
Here is an example of
A payment one normally makes at the end of the month of $2398.20.
Assume this payment made around Nov 30: Mark it as Regular payment (Interest
---- The above payment has due date of Nov 30 but most lenders give
you additional 15 days (please look at the back of your mortgage payment
invoice/form) so actually most of us are not taking advantage of these
15 days of grace.
$2398.20 to be paid around December 15th: Mark this a special/extra
payment towards principal
$2398.20 will be paid around January 15th : This is a Regular payment
(Interest + Principal)
----- This payment notice has a due date printed as Dec 31,xxxx but
we are paying it on Jan 15 by using 15 days of grace period.
$2398.20 to be paid around February 15th : Regular payment (Interest
----- This one has due date of Jan 31st and we are paying it on Feb
15 using 15 days of grace
and this way we will keep making payments on 15th of the next month
instead of on 30th of the prior month
---> You will be punctual in paying by 15th. If you fail, there is
some penalty. However with Automatic setup online, this is no longer that
difficult as such. I would advise to try to pay by 14th of the month.
---> It is assumed that you are currently paying by 1st of the month
and you have no financial difficulties in paying that monthly bill 15
days earlier each month. As said, no pains no gains, and there is never
a free lunch in financial markets.
---> It is important that the first time you pay on 15th, you mark
it as a payment towards Principal amount else all these benefits will
accrue to your lender instead of you.