CHARLOTTE – As you enter into the world of home ownership, one may wonder to themselves how they are ever going to get to the end of a 30-year mortgage. Others ask during the purchasing process about a 10 or 15-year mortgage, but find the payment is too high. The good news is, is that there is a little trick that can help get a mortgage paid off, without the burden of being stuck with a higher monthly payment with a shorter-term loan. That trick is called “principal reductions.”
Many people are not aware that any dollar amount one pays OVER the minimum payment each month is applied 100% to the principal of the loan, interest-free. Therefore, if an individual makes just one extra payment per year (or spreads the one extra payment over 12 months), it will take approximately 5-6 years off of the loan! The reason being, is because as the years past and the balance goes down, more and more of the regular payment is applied towards principal compared to the interest. Then the “principal reduction portion,” continues to be applied towards 100% principal. That then begins to compound the principal/interest and before one knows it, the mortgage is dropping dramatically. The other great thing about this trick is if hard times come, or repairs are need to the home, one always has the choice to pay the lower minimum payment, and then restart their additional payments at their choosing.
All in all, if there are any questions with the strategy above, please do not hesitate to call/text/email at any time (brandon.wolf@primisbank.com (704) 430-6138).
