Should You Accelerate Your Mortgage and Pay it Off Early? 3 Numbers You Need to Know

There are plenty of different opinions out there onA). Divide the interest total you got in step 1B by your
whether or not you should pay off your mortgageloan amount.
early. But opinions don't matter. Numbers do. The best$231,676.00 / $200,000 = 116%
way to decide if mortgage acceleration is for you is toThis number is the cost of your home loan, or your
learn how much your mortgage debt is really costingactual interest rate.
you. I'm not talking about your interest rate or monthly#3). The Half-way Point.
payment. I'm talking about three numbers in particular;The half-way point number has two parts. First, the
your total interest cost, your actual interest rate andnumbers of years it will take to pay your loan in half
your half-way point.and secondly, the amount of interest you will pay to
These 3 numbers will tell you the true cost of yourget there.
mortgage debt and in this article you'll learn how toA). Go online and find a free mortgage calculator like
calculate them quickly and easily. If you like what theythis one:
tell you about the cost of your mortgage debt, thenB). Enter your loan specifics i.e. loan amount, interest
you don't need mortgage acceleration and there is norate and term. Choose a specific start date and hit the
need to pay off early. If on the other hand, you don'tShow/Recalculate Amortization Table button further
like what you see and want to minimize the damage,down the page.
then you should look into implementing a mortgageFor example, I will enter $200,000, 6% for 30 years
acceleration strategy.with a start date of January 2010.
For the examples in this article, we'll be using aC). Scroll through the results until you see half of your
mortgage of $200,000, at 6% interest fixed for 30loan amount in the Balance column and write down
years with a monthly payment of $1199.10.how many years it will take to get there.
#1). Total interest cost.D). Write down how much interest you have paid to
This is not as obvious as it may seem. Mortgagethis point as well.
interest is calculated differently from other debt, andThese are your half-way point numbers. What these
you need to know exactly how much interest you arenumbers tell you is how much it costs, in both time and
paying on your home loan. Here is how to find thismoney to reduce your loan by half.
number:At this point, you should have a short and sweet
A). Multiply your monthly payment by your term:"diagnosis" that looks something like this:
For example, $1199.10 x 30 years (360 months) =#1). I will pay a total of $_______ interest on my
$431,676.00.home loan.
This is the total amount you will pay your lender. When#2). My actual interest rate is _____.
you calculate this number, be sure to use just your#3). It will take ___ years to pay my loan in half. At
principal and interest payment.that point, I will have paid $_________ in interest.
B). Subtract your loan amount from the total you got inNow ask yourself, do you like what you see? Do you
step one.want to pay that much interest and be in debt that
For example, $431,676.00 - $200,000 = $231,676.000long? Is this debt good or bad for your financial health?
This is your total interest cost.Would you change these numbers if you could? Is this
#2). Actual interest rate.a problem you want to fix?
Again, not as obvious as it may seem. The interestThese are questions only you can answer, but my
rate on your home loan is one thing. How it isgoal is to arm you with specific and personal
calculated is a very different thing. As a result, yourinformation so you can make an informed and
actual interest rate, or the true cost of your loan, is noteducated decision. Hopefully these 3 numbers do just
what you think.that.