When you are searching for a mortgage, you shouldn’t only base your decision on rate. It is important to search for the “best mortgage”. A mortgage that not only provides the best interest rate, but also the one with the best terms and conditions. By understanding mortgage terms and what they mean in dollars and sense, you can save the most money and choose the term that is best suited to your specific needs.
With a closed term mortgage, you can’t pay off your mortgage before the end of the term without having to pay a penalty.
The pre-payments without penalty clause is one of the conditions that can save you a considerable amount of money in the long run. This clause allows you to make payments on the principal of your loan, or increase the amount of your periodic payments (monthly, bi-monthly, etc.) without a penalty. Each lender has different programs for pre-payments, they usually vary from 10% to 20%, i.e., you can pay any amount within the approved percentage of the original value of your mortgage or increase your periodic payments once a year without paying a penalty.
Many people don’t take advantage of this clause because it is generally difficult to save the extra money to make additional payments.
Here is an easy way to take advantage of this benefit – “The Java Factor”. This is something that is very easy to follow and can save you thousands of dollars by paying down your mortgage.
Usually everyone buys a cup of coffee or two during their work day. When you see the cost of a cup of coffee at Starbucks or any other establishment, you realize that maintaining this habit can be very costly.
Suppose that you spend at least $5 per day, 5 days a week in “coffee, donuts, chocolates, snacks, etc.”, this would amount to approximately $108 per month; if you apply them to your monthly mortgage payments, the savings can be considerable.
In a $100,000 mortgage at a rate of 3.39% and 25 years amortization, you would reduce the total payment of your mortgage by 5 years and 4 months with savings of $13,185 in interest. For this calculation, we considered that the interest rate did not change during the life of the mortgage.
This calculation would vary case by case but depending whether you have a pre-payment clause with your mortgage or not, it is important to emphasize that by making a small sacrifice you can have significant long-term savings.
So remember “The Java Factor” next time you are thinking of stopping by for a coffee on your way to work and take a cup of coffee brewed at home.