How to calculate savings to your Family Budget with an accelerated Mortgage Payment Plan

An accelerated mortgage repayment plan is a big mystery to the average American or Canadian family. As a result, predators take advantage because the dollar amounts at stake are huge. Predatory Lending has become a hot topic lately. Recent, Media Reports record the devastation of the family budget, the destruction of family peace, couples fighting over money and damaged relations. Separation and divorce are rising. Forget money. The biggest impact hits the children who must learn to survive emotionally in broken homes and compound families. You might think such predatory lending does not apply to your family. Read on and you will discover that the predators often are those you least suspect.

This article explains the benefits of accelerated mortgage payments to a Family’s monthly budget plan. Can you afford an extra $1,000.00 mortgage payment each year at income tax refund time?…. What is the benefit if you pay the mortgage with the extra cash? Or should you spend the extra cash having fun on a family vacation that did not shrink the monthly household budget? The answer lies in the fact that the accelerated mortgage repayment of $1,000.00 delivers rewards way in excess of what you might think.

Every one knows that a regular $1,000.00 mortgage payment is divided up into interest charges and principal reduction amounts. With each regular mortgage payment from the household budget, an extra payment of $ 1,000.00, for example, is usually divided like this:

Interest Charges paid to the Bank: $800.00
Principal Payments to pay down the mortgage: $200.00

This is just an example of the split in benefits. But it is a fair example of payments made within the first few years at the beginning of your mortgage payments. The ratio for dividing these mortgage payment dollars is therefore 4:1. For every $1.00 you reduce your mortgage debt, you pay $4.00 to the Bank or Lender for their service in allowing you to use their money.

Many a self appointed finance expert often misunderstands the real impact of an accelerated mortgage pay off plan. They will refer to the gain as simply a return on the extra $1,000.00 payment, equal to the Interest rate on the mortgage itself. If the mortgage is written at 5.00%, for example, they would say that the early repayment of $1,000.00 will simply earn a rate of, maybe, 5.00% by making an extra payment on the 5% mortgage compared to the returns to be had from a Bank’s Savings Account. They analyze this alternative in a simplified manner as if the $1,000.00 were invested in a Bank’s Savings Account.

That analysis is only partly true. It ignores the leverage of the much bigger mortgage debt. A Home Owner’s gain of a 5.00% rate of return by paying the mortgage fast is just the beginning of the gain. The real gain includes much more. More powerful gains, too often overlooked, relate to the same 4:1 split of most of the early mortgage payments. With a $1,000.00 early payment from the home budget to the home mortgage, every dollar goes directly to pay down the principal of that mortgage. The split is not the customary 4: 1 split which normally occurs with the regular mortgage payment. All accelerated payment dollars become principal reduction dollars. There is no split in the benefits.

Following this example of a $1,000.00 extra mortgage payment, that early payment immediately erases about 5 mortgage principal payments. You need to understand the practical math here. If each payment reduces the principal loan amount by $200.00, then $1,000.00 will take care of five of those $200.00 principal reduction amounts. By fast paying those five principal payments early, at $200 each, approximately, you would erase as well, the five interest payments associated with them. The interest associated with each principal payment is about $800.00…. See the chart above.

You will see the picture much more clearly when you have the detailed re-payment plan of your entire mortgage loan in front of you. This detailed mortgage repayment schedule is called an amortization table. It lists the amount of each payment from the first one to the last one you would need to be free of your mortgage and to have it paid off entirely. This mortgage repayment schedule divides each payment you make to show how much of your money goes to lower the mortgage principal and how much goes to pay interest as a reward to the Lender for the use of their money. You have no real need to learn advanced math calculations and fancy algebra equations in order to figure this out. You can print an amortization schedule of your mortgage from any self respecting mortgage website. Unfortunately, few families take this simple step as an important tool to improve the family’s budget.

Here is the scoop for the average Consumer of Mortgage Loans: The total savings on such a $1,000.00 early repayment must include the $800.00 of interest savings multiplied five times. The total of your interest savings therefore for five payments is just under $4,000.00. I say approximate because, the precise calculations require those advanced math equations that the average Consumer does not need to know.

These are the true numbers Folks. A $1,000.00 extra payment on your mortgage from the household budget can save you around $4000.00. What you need to know as a Consumer is that these early repayments bring results out of proportion to what you might think. Here you are, making a $1,000.00 early prepayment on your mortgage, but your savings reach at or near $4,000.00!! That is what is referred to as the magic of compound interest.

By creating and following an accelerated mortgage repayment plan in the family budget, you can have that kind of "money magic" work for you not against you. This is one of the big Bank Secrets Consumer advocates teach. Usually such money magic works for the Bank. With the help of your own Expert, you too could turn this knowledge to your benefit instead. You will find access to these techniques at this website:

http://www.mortgage-freedom.com

In fact, in many a hard-working household of these United States and in Canada, we have no specific plan to repay the mortgage. Unfortunately, we rely on the friendly Banker to create our mortgage repayment plan for us. Why? … Because we trust our Bankers without question. As a result, Consumers pay what the Banker says we must pay and we pay for 25 to 30 years following the Bankers’ Plan for full repayment of his money, usually, our largest loan.

You just saw how to save $4,000.00 by making a one thousand dollar, ($1,000.00), accelerated mortgage payment. Returns on these accelerated payments are not 5.00% as some would have us believe. …. These returns are closer to a 300% return on the money. But the average, working, American and Canadian Mom and Pop - and Professionals too - who pay their mortgage from hard-earned dollars, do not understand how to apply that math to benefit the home budget.

One final thought is to imagine a regular tax refund of $1,000.00 that makes five extra principal payments on the home mortgage every year for 10 years. The simple answer to that is a $40,000.00 savings. But when the "money magic" of compounding enters the picture, you will find that such a plan creates acceleration in the final pay off date for complete repayment of the mortgage.

A disciplined, mortgage repayment plan can reduce the number of years that Home Owners and Borrowers must pay to end the debt. Most families with a Mortgage have no fast mortgage repayment plan at all. The few who seek professional advice and follow an accelerated mortgage repayment with discipline are rewarded with many years of freedom from a mortgage payment. They enjoy huge savings from the family budget. On the flip side, the sad truth is that the overwhelming majority of Canadian and American households condemn themselves to an extra five years, ten years, sometimes fifteen years of payments they need not make. These are years they go in month after month, week after week with huge amounts of dollars they hand over to their Banker to make payments that really are un-necessary

If you did not create an accelerated mortgage repayment plan independent of your Lender then chances are you are the victim of a Predator. Predatory lending does not only refer to high interest charges. That meaning also includes making un-necessary mortgage payments from your monthly household budget for years.

If you have a mortgage which eats up anywhere from 30% to 50% of the household income, you cannot afford to leave your family’s fortunes in the hands of those who stand to gain most from your lack of knowledge. Don’t walk, but run to get the knowledge you need in order to win in this complex field. You must get your mortgage payment planning right.

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