Buying a home in Wenatchee (or anywhere) is a mix of emotional and financial considerations. The emotions are way more difficult to quantify than the financial benefits.
Here is an interesting article on keeping the emotions of buying a home in perspective.
Aside from the emotions, the financial benefits of buying a home are fairly straight forward and indisputable. Oh, you're probably thinking about the housing bubble and all those people who got foreclosed on and their home was worth less than what they paid. And, that is a fact. There is no denying it. But, that is a subject for another day and I am so thankful Wenatchee real estate did not suffer the devastating price declines in many other markets.
What I really want to share with you today is how to, painlessly, pay your mortgage down early and save tens of thousands of dollars in interest payments in the process.
If you are currently buying a home, have you ever actually looked at the amortization schedule of your mortgage payments? An amortization schedule is a table detailing each periodic payment made on a loan. It outlines how much of each payment goes toward interest and how much is being applied to the principal pay-down on the loan.
For example, on a $200,000 home, with a 20% down payment at 5.25% interest with a typical 30 years mortgage:
Loan Balance: 160,000
For example, on a $200,000 home, with a 20% down payment at 5.25% interest with a typical 30 years mortgage:
Loan Balance: 160,000
Total monthly payment (interest & principal) = 883.53
First Month:
Interest payment: $700.00
Principal: $183.53
After 10 years, the breakdown looks like this:
Interest payment: 573.64
Principal: 309.89
The loan balance at the end of 10 years is: $130,807.36
Literally, every month the interest portion of the payment goes down, and the application to principal goes up.
Now... let's see what happens if you pay just $80 more per month. That is $20 per week, about $2.86 per day (less than a gallon of gas). Could you find a way to save $20 per week if you really try? You could deduct $20 every Friday from your checkbook and add it to your regular payment each month. Here's what happens:
Regular payment: 883.53
Extra payment: $80 ($20 week)
At the end of 10 years:
Loan Balance: $118,527.09
Wow! Your loan balance is now $12,280.27 LESS than it would have been, after just 10 years!
This does two great things! First, If you continue to make payments like that, your mortgage will be paid off almost 6 years early and you will save over $60,000 in interest! Second, If you decide to sell your home before the mortgage is paid off, you have built equity quicker and you will have more money to put into your next home (or your pocket).
These are just sample numbers, of course. The higher the loan balance and higher the interest rate, the more dramatic the savings. Play with the numbers to suit your specific situation, but you get the idea. Go to BankRate.com to use their amortization calculator.
The moral of the story is: Pay just a little extra money as you go and you will save big money at the end. What would you do with the extra money if you have no mortgage payment? That is another story for another day!
Best Regards,
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