Mortgage Payment Timing


Hey everybody I wanted to talk about a
personal finance issue that is currently on my mind. So I’m buying a house and I’m thinking about you know, how could I potentially pay off the mortgage a
little bit sooner than the 30-year term that I’ve signed up for. So not only do
I have to think about the amount of money in addition to the monthly
mortgage payment that I’m paying on principle, but the timing that are related to
those payments is also very important as well. So the math behind it shows the
earlier in the term that you make those additional principal payments the
greater the benefit that you are going to have over the course of the loan. So
what that means is you’re going to pay more earlier and you’re gonna be saving
much more on your interest over the course of the term, as opposed to if you
made a smaller amount on a more frequent basis and over a longer period of time.
So here’s the math behind it. So here’s a spreadsheet that I put together with a
few different examples. I used Microsoft Excel “Loan Calculator with Extra
Payments” template that I downloaded earlier today and I’ve put together a
few different scenarios. One being the normal loan calculation based on
$200,000 annual interest rate 3.875 percent over 30 years. The next scenario
I’ve got is if I have $10,000 and I make two principal
payments, one at the 12 month of $5,000 and another $5,000 payment at the 36 or 37 month. The next scenario is if I have
that same $10,000 but I break it up over a much longer period, making additional
principal payments of $50 per month. The third scenario is if I had that same
$10,000 and I make one blanket payment on month 1 of the of the loan. So
here’s how it shakes out. As you can see I’ve summarized the data of all the
different scenarios looking at total interest paid and total interest savings.
So here’s my normal schedule of how much interest I’d pay over thirty years $138,000. So now the next scenario if I were to
pay an additional $50 on principal for a number of years up to ten thousand
dollars in total. I would save twelve thousand dollars in total interest. Okay
that’s great however if I took that same $10,000
dollars and broke it up into two payments one of $5,000 at
month 12 and another of $5,000 at month 36, I’d
save a total of $18,000. So same amount but a different
schedule of payment. The third scenario is if I pay that same $10,000 in month one of the of the loan term and I don’t make any more payments
for the rest of the year [or term]. So how that shakes out is I’m going to save an
additional roughly $375 over the last – 2
$5,000 payments. So you can see if I have $10,000, the best thing to do is to put it all down on the principle as early as
possible to realize the biggest savings on interest over the term of the loan.
I hope you guys find this interesting give me a shout if you have any
questions I’d love to work through any scenarios with you

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