Making small payments towards your mortgage can lead to significant savings in the long run.
With 30-year fixed rates at their lowest in 25 years, making a slightly higher monthly payment can greatly reduce the amount of interest you will pay throughout the duration of your mortgage. Below are various scenarios demonstrating the amount of interest you can save by making a small increase to your monthly payments.
Base scenario and assumptions
Here’s the assumptions used for this base scenario:
✅The average price of a home in the United States during the early third quarter of 2024 was $420,800, with a mortgage rate of 7.50%.
✅Typical down payment in the United States is 10%.
✅Home purchased with a 30-year fixed-rate mortgage
✅The monthly payment covers only the principal and interest payments, excluding additional expenses usually combined with monthly payments, like property taxes, homeowners insurance, and mortgage insurance premiums.
In this basic scenario, without any extra costs added to your monthly payment, you would end up paying $574,583 in interest throughout the 30-year period of your mortgage. If you purchase this house for $420,800, you would ultimately pay nearly $1 million, including $574,583 in interest fees!
Not one of us is willing to spend $1 million on a $420,000 house. Therefore, let's explore the following situations to determine the potential interest savings from slightly increasing your monthly payments. Below are the base scenario assumptions summarized alongside the potential interest savings and accelerated mortgage payoff in each of the following.
Example #1: An Extra $100 Per Month
Increasing your monthly mortgage payment by $100 could result in savings of $81,902 in interest charges and reduce the mortgage payoff period by 3½ years.
Example #2: An Extra Lump-Sum at Years 5, 15 & 25
In this scenario, suppose you decide to make extra lump-sum payments of $5,000 in the 5th, 15th, and 25th years of your mortgage. Even though you won't significantly reduce the time needed to pay off your mortgage in this situation, you will still save almost $37,000 by making three lump-sum payments throughout the mortgage term.
Example #3: An Extra $200 Per Month
If you have the means to allocate an additional $100 monthly towards your mortgage, consider aiming for $200 instead. This is when the calculations become exciting. By adding $200 each month, you can pay off your mortgage 6 years earlier and reduce interest expenses by $140,000.
Every little bit helps
By increasing your monthly payment by just $10, you could accumulate savings of almost $10,000 throughout the duration of your mortgage. This significant amount of money would be directed into your own bank account rather than your bank's coffers!
Settling your mortgage ahead of schedule and reducing the amount of interest paid throughout the mortgage term doesn't necessitate a large sum of money. Whether it's $100 or $10 monthly, every contribution can make a difference in striving for an improved financial future for yourself and your family.
Contact us and let our skilled OAHU Tax Experts offer their well-rounded tax advice and tailored tax solutions to help you file accurate tax reports. Diamond Head Tax Group is Honolulu's trusted source of tax filing services serving Waianae, Honolulu, Kapolei, Oahu and surrounding areas.
Early Mortgage Payoff Tips from Diamond Head Tax Group
We are available to assist you with your Tax Needs.
Individuals ● Business ● Tax Advisory ● Payroll Services
Comentarios