| If you were to look at the how your mortgage | | | | payment. So, if we don't use any time, we don't pay |
| amortizes, you would find the early months' payments | | | | any interest. Therefore, by adding another $165.85 to |
| would include a lot of interest and only a little principle | | | | this next payment we will save ourselves from having |
| being paid. Conversely, you'd find down toward the | | | | to pay an amount of money that is equal to the |
| bottom of the amortization table, or spreadsheet, | | | | interest on this payment. This amount is $1,164.75. |
| where the mortgage is in its waning months, the | | | | The Last Few Months are All Principal |
| interest part of the payment will be small and principle | | | | Turning our attention to the last few months of the |
| part of the payment will be large. | | | | mortgage, we see those payments are mostly |
| The fact very little principle is being paid in the early | | | | principal. So doubling up on our payments during these |
| months of a mortgage seems unfair. It as if you are | | | | months is more difficult because we have to add a lot |
| spinning your wheels in the first few years of the | | | | to our payment to save a small amount of time value. |
| mortgage, as you make your payment every month, | | | | Still, it can be done. However, we just won't get as |
| but the balance doesn't seem to get any smaller. | | | | much bang for our buck. |
| In this article, we're going to talk about how to turn this | | | | Make 6 Payments at a Time, Easily! |
| perceived disadvantage into an advantage that when | | | | Now, we can see the high interest part of the |
| used properly can lead to paying your mortgage in full | | | | mortgage, which is the early part of the mortgage, |
| years ahead of schedule! | | | | presents us with an opportunity. It is conceivable, we |
| Amortization is Slow in Early Months | | | | could make 5 extra payments at a time in this part of |
| The process of paying a mortgage is known as | | | | the mortgage because it would cost less than an |
| amortization. The rate of how slowly or quickly the | | | | extra $850 to do so. By making only six, of these |
| principal is being paid is said to be how the mortgage | | | | $850 payments on your mortgage, you would cut |
| amortizes. The document showing how our mortgage | | | | about three years off of the time of the mortgage and |
| amortizes is an amortization table, chart, schedule, or | | | | in doing so would save 30 payments of $1330.60, |
| spreadsheet. | | | | which equals nearly a $40,000 savings! |
| As we noted earlier, in the first few months of a | | | | The Early Months of Amortization is Our Secret |
| mortgage, we see little amortization taking place. With | | | | Weapon |
| a $200,000 mortgage, at 7% over 30 years, the | | | | Of course, you probably couldn't keep making six |
| monthly payment due is $1,330.60. If we look at an | | | | payments at a time for very long because the principal |
| amortization schedule we see that in the second | | | | part of the mortgage payment starts to increase at a |
| month we pay $164.89 of the principle, while the rest | | | | relatively rapid pace. Still if you only made these 6 |
| of the monthly payment, $1,165.71, is all interest. Now, | | | | payments this way, you would be well ahead of the |
| how can we turn this to our advantage? | | | | game. |
| Looking at the next payment, we see we will be | | | | In conclusion, using this method is a little known way to |
| paying $165.85 principal. Now, bear in mind the principal | | | | save a lot of money, maybe even a hundred grand, or |
| part of the payment is the time charge of the | | | | so, on interest! |