When we close on a home mortgage, we agree to pay the mortgage company a specified monthly payment amount in a specified term "commonly 30 years".  If we strictly adhere to the agreement terms - paying only our monthly obligation - it will take us the full term to pay off the loan.  In this particular case let's say 30 years or 360 months.

With the same loan if we pay a little extra, we will payoff the loan in less time and  pay less interest - Which really means that we pay less for our home.  This is called "pre-payment"

Pre-payment is the basis for all plans designed to help you pay your loan off sooner - whether you choose to "do it yourself" or enlist in the help from your lender, bank or from a third party program.

     If no additional money is applied to the balance of the loan,

        Then there is no adjustment to length of the term or amount of interest paid.

If this is so simple - why don't we do it?  I have listed some of the most common reasons why we just don't send a little extra when we can.

     We are not aware of the benefits.

     We are unsure we will feel the impact of the additional payments.

     We do not have any additional money to send.

     We will need that additional money for an emergency.

     We do not know how much to send and when to send it.

     We do not like the restraint of a budget.

     We don't understand the power of leverage.

Reasons 1 and 2 stand out as the "motivators."  If we are not aware of the "benefits and the impact" - we may not realize what we are missing out on!

Why should we do something with no goal or purpose?  What's the point?

Benefits and The Impact

What is the Point?  For starters, let's talk about the financial benefits - we want to reduce the amount of "interest" we signed up to pay in our mortgage agreement.  Note - "interest" is a fee charged above and beyond the money we borrowed.  Actually, it is a "convenience fee" (it allows us to get into our new homes now - without the need to wait).  Let's take a look at how much this "convinience fee" is costing us in the following examples.

$200,000.00 mortgage

                6% interest rate

30 year term (or 360 monthly payments > 30 years x 12 months

   $1,199.10 monthly note

*The monthly note is calculated using a mortgage calculator.

Paying 360 monthly payments of $1,199.10 over 30 years comes out to $431,676.00!  If we subtract the original loan amount of $200,000.00 from that, we see that we're paying $231,676.00 in interest!  That's more than the amount that we borrowed!  What's wrong with this picture?

$1,199.10 x 360 payments = $431,676.00 (what was paid back)

$431,676.00

-$200,000.00

----------------

Interest paid: $231,676.00

Here are a few more examples:

Table 1 - Interest paid vs. Amount Borrowed

In all of these examples, the full amount paid back was more than double than the amount borrowed!

Motivation

Time to go shopping!  We go to the grocery store, fill up the shopping cart and notice that it takes a nice chunk out of our wallet.  This is necessary after all we need to eat and feed our family.

It's times like these that we find ourselves heading to the "Super Stores" or "Members Clubs".  Yes, they do offer "one stop shopping".  But what really drives us to these warehouse sized grocery stores?

Saving Money

Hello! Who doesn't want to save money?  Ok, so maybe we save a few bucks on groceries, but what "price" do we pay when shopping in these types of stores?  Longer walks from the parking lot to back of the store.  Longer waits in the checkout line.  Getting lost trying to find that one last crucial item on our list.  We're trading saving money for a little extra "work" on our part.  We understand the trade off though and are willing to do a "little extra work" to save on our grocery bill.

Yet, how many times have we avoided a Super Store when all we need is a gallon of milk on the way home from a busy day at work?  It's times like these that we find our way into the "convenience" stores.  Sure, we typically pay more, but we are paying for the convenience of a "quick, in and out" walk, as well as a shorter checkout line.

We are given choices.   When we get the chance or "have the time" to save a little money, we do not mind the extra work of a longer walk to and from the car nor waiting in line a little longer at the checkout counter.  If it is worth it to us, we will do a little extra work.  Sometimes we are motivated by the money savings; sometimes we are motivated by the time savings.  It's a trade off.

Lower Prices = Longer Walk, Longer Checkout Lines

Quick "In and Out" Service, Convenience = More Expensive Prices

So what does this grocery story have to do with mortgages?

Let's put two and two together, if you're reading this, the odds are that you have a mortgage.  If you could have paid cash, you could have saved yourself a lot of money and avoided the headache of a monthly mortgage payment. Right?

Instead, most of us must sign up for the 15, 20 or 30 year "payment" plan - our mortgages (not to mention there are 40 and 50 year mortgages available today - Wow).  We didn't really have a choice if we wanted to get in our houses "now".  When we signed on the dotted line for our mortgage, we "signed up" to pay back more than what we borrowed - a whole lot more!  We "agreed" to do this!  Just like we agreed to pay more for that gallon of milk at the convenience store.  Maybe we didn't realize it or were not too concerned at that moment, but the fact is that we are now committed.  We owe and we owe a whole lot more than the purchase price of our home!

There has to be a better way.  And thankfully there is.

It's one thing to pay for "convenience", But more than DOUBLE the price of our home?

Our Goal

Pay less for the convenience of borrowing money to buy our home by paying our mortgage off sooner!

Get all the full story... http://www.mortgagefreefinancial.net/equity-acceleration.html