Vashon Homes & Events from Go! Real Estate

The benefits of extra mortgage payments… owning your home sooner!

Even with the national housing market in a slump, the Seattle real estate market continues to appreciate. So, for those of you who already own a home, you know that your property is a solid investment. But what should you do if you’ve got some extra cash to invest?

Consider making additional principal payments which can significantly shorten the term of your loan and put serious money in your pocket. Here’s how it works…

When you buy your home and take out a loan, the lender earns a rate of return on the amount you borrowed, not just at the annual percentage rate of your mortgage but at a compounded rate because you’re borrowing the money for the long term.

But… if you pay down your loan, the reverse is also true in that you’ll not just earn the annual percentage rate on the amount you pay off, but a compounded rate of return because you’re effectively shortening the length of the loan. I did this on my own home several years ago and calculated that on a loan of about 8% interest, I was actually earning a compounded rate of about 13% on the lump sum I paid down against the principal. And it was a guaranteed rate of return, a LOT better than what I could have done in the stock market without risk!

The exact amount can be difficult to calculate if you don’t have an amortizing calculator. To make things easier, here’s an easy-to-use Mortgage Calculator that lets you figure in recurring or one-time principal payments and how that changes your pay-off dates.

http://www.bankrate.com/brm/mortgage-calculator.asp

October 29, 2007 at 5:04 pm 1 comment