First Person: Little Changes Can Make a Big Difference on a Mortgage

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It really is amazing how seemingly minor adjustments can be a big different when it comes to a long-term mortgage. Many people don't realize just how an extra payment here or an extra percent in interest there can add up to big numbers over the course of a mortgage.

One easy way to see just how big a difference these seemingly insignificant adjustments can make is by using an amortization schedule calculator or mortgage calculator. It's the quickest and simplest way I've found to gauge how such adjustments can save money when it comes to homeownership.

Interest rate

Did you know that the difference paid in interest over the course of a 30-year, fixed rate, $200,000 loan at a 5 percent interest rate and a 4 percent rate is nearly $43,000?

It just goes to show how big a difference an apparently insignificant number can make in the overall scheme of paying for a mortgage. Being able to try different rates in an amortization schedule calculator before taking on a loan can help a prospective buyer understand how important getting a good rate can be and a current mortgage holder understand how important paying down a mortgage faster can be.

Downpayment size

Chopping off a big hunk of a mortgage up front through a larger downpayment helped us build equity in our home faster and reduce the overall amount of interest paid on the loan over time. We found that doing this in one fell swoop not only reduced our payment size and our interest owed, but it reduced the initial charges involved in obtaining our loan, meant we didn't have to take on private mortgage insurance, and was easier than making extra payments a little bit at a time later on. Just bumping up the size of a downpayment by 5 percent of a loan's overall amount could cut tens of thousands of dollars in interest off the course of the loan.

Extra payments

Extra payments can be a great way to reduce the amount in interest paid on a mortgage. Using an amortization schedule calculator can help see what the effect of a regular extra payment amount or even just an occasional extra amount put toward a mortgage every now and again is. Whether it's a full extra payment every year, or a few hundred dollars put toward the loan after a work bonus or tax return arrives, being able to see that amount of interest owed on a loan drop by thousands of dollars as a result can be a great motivator to keep up the good work.

Mortgage timeframe

Ever wonder what 5 years cut off the term of a 30-year fixed rate loan would do to the amount owed on that loan over time? Well, a mortgage calculator is a great way to find out.

On a $250,000 loan, with a fixed interest rate of 5.5 percent and a 20 percent downpayment, the difference in interest paid between a 30-year and 25-year term comes to about $40,000. Bump that loan timeframe down to just 15 years, and the interest savings nears $115,000.

Therefore, even seemingly small adjustments made to a home loan can have huge repercussions. And while the savings can add up with the right moves, the costs can skyrocket with the wrong ones. Using these types of calculators though can help see what the wrong moves are before it is too late.

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The author is not a licensed financial, mortgage or real estate professional. The information provided in this article is for informational purposes only and does not constitute advice of any kind. Calculations have not been verified by a professional. Any action taken by the reader due to the information provided in this article is solely at the reader's discretion.


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