A mortgage payment represents one of the greatest expenses of the typical American citizen. But mortgages never seem to get paid off (even though we know it happens).
The reason for the seemingly endless duration of a mortgage note is that a mortgage payment is much more about interest on the loan than it is about the loan amount, or "principal".
Until the final years of a mortgage, most of your monthly payment to the lender goes to finance the interest payments on the principal amount, rather than pay down that principal. A mortgage of $100,000 principal with an 8% interest rate, if the note is 30 years long and all payments are made on time, will cost you about $300,000.
But there is a way to save both money and stressful time on your mortgage in the long run: pay it off early.
In a mortgage contract, interest accrues to the outstanding principal balance with every passing day. Therefore, the faster you pay down that principal, the less total money you need to pay in the long run.
It is because of this reason that many people who can afford to do so opt for a 15 year mortgage instead of the standard 30 year. Although their monthly payments, given the same interest rate and loan amount, are higher with the 15 year, they realize that in the long run they save a lot of money because the principal is paid down twice as fast.
There is a way, however, to pay off a mortgage even sooner than within 15 years, and thus save yourself even more money in the long run.
One method that some homeowners use is the "bi-monthly payment" plan. With this voluntary, but sometimes lender-facilitated, payment plan, one-half of a month's mortgage payment is made every two weeks. Not only does this come out to an additional month's payment per year, the accretion of interest is sliced in half every month by the timeliness of the payments. This results in a 15-year mortgage note being paid off in about 11 years and a 30-year mortgage note being paid off in about 22 years.
But, it is possible to pay off a mortgage even sooner--in as little as eight years. (Remember, the faster the mortgage principal is paid off, the more money that's saved.) The way to do this is to use what's called a Money Merge account. With a Money Merge account, your mortgage account doubles as your checking account--so, your paychecks "automagically" go toward paying down your mortgage principal.
