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Jan 30, 2009

Not a Rounding Error, it's a Strategy

Want to accelerate your principal payments on your mortgage without squeezing your budget? An easy and painless approach is to round up your payment to the nearest whole dollar and add an additional ten to twenty dollars to your monthly payment amount. Here's an example:

A $200,000 loan at 6.5% APR for 15 years has a regular payment of $1,742.21 for 180 months. The interest portion of the payments over the life of the loan total $113,599.22.

Rounding the payment up by $0.79 plus adding an additional $10.00 per month changes the regular payment to $1,753.00 for 179 months. That's the acceleration of an entire month's payment! In addition, the interest portion of the payments now total $112,274.32. Which means you are saving $1,324.33 in interest.

Want to accelerate even more? Add an additional $10.00 for an extra $20.79 per month in principal. The regular payment is now $1,763.00 for 177 months. That's the acceleration of three months of payments. In addition, the interest portion of the payments will total $111,075.47. Which means you are now saving $2,523.18 in interest.

2 comments:

lulugal11 said...

This strategy can be applied to any payment, not just mortgages.

I do this to my credit card and car loan payments as part of my debt snowball and it really works.

(see I did come back to comment)

SolidPlanning.com said...

lulugal11: Thanks for the comment! We agree, this is a great strategy for just about all debt. (Thanks for coming back!!)

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