Sunday, January 10, 2016

Mortgage Acceleration: My First Additional Principal Payment

Principal Mortgage Payment

So I just wrote the check for my first extra principal payment. We’re halfway through 2015 and my goal is to apply an additional principal payment with each of my remaining mortgage payments through the remainder of 2015. Ideally, I’d like to send in at least double the amount of principal that is being paid with my standard payment each month, but we’ll see what happens… that might become difficult around Christmas time.

My April mortgage payment had already been made, but I still wanted to get in an additional principal payment prior to my May payment being made, so I wrote a check for $2,500 and sent it in today. This payment will basically be applied as additional principal to my April payment (as long as the receive and process it prior to my may 1st payment), so let’s take a look at what this will do to my mortgage balance and next months principal and interest payments.

Month Amount to Interest Amount to Principal Mortgage Balance
April Payment (No Acceleration) 1,260.57 249.20 237,034.28
Resulting May Payment 1,259.24 250.53 236,783.75
April Payment (With Acceleration) 1,260.57 2,749.20 234,534.28

Now, with the obvios fact aside that I spent an extra $2,500 on my April mortgage payment, let’s look at the resulting July mortgage balance and the resulting principal and interest payments. I’m decreasing the amount I’ll have to pay to next months interest by $13.28 – Yes, this is very small when compared to the $2,500 I just forked out, but let’s consider it over the course of the next year.

Assume I don’t make another additional principal payment, then I’ll be paying $14,857.40 just to interest over the next year, whereas if I had not made the additional principal payment, I would have been paying an additional $15,021.52 to interest over the next year. A differenct of $164.12. I still have 28 years remaining on my loan, so considering just a year is a very insignificant amount, but if we compare it to what I’ll pay to interest for the remainder of the life of my loan, that’s where we’ll see bigger savings. With the additional $2,500 principal payment, I’ll be paying $262,553.97 toward interest over the remaining live of the loan, and without the additional principal payment, I’ll be paying $274,772.74 to interest over the life of the loan. This is a savings of $12,218.77 – just for making an additional $2,500 payment today. More importantly, I’m also shaving 9 payments off of my mortgage, having my final payment of $373.92 coming due on 12/1/2035 rather than 9/1/2036.

Reverse mortgages give seniors who are no longer able to work or generate income a way to leverage the equity in their house to start receiving a monthly income once again. The payments received from the reverse mortgage can be used to pay medical bills, credit card debt, or any other expenses that may be necessary.

Qualifications & Requirements of a Reverse Mortgage

You must be 62 years or older, and the home that the reverse mortgage is being taken against must be your primary residence.

How much money can I get from a Reverse Mortgage?

The reverse mortgage amount will depend on your age, interest rate, and the value of your home. Typically, the more valuable your home is and the older you are, the more money you will be able to borrow with your reverse mortgage. A lower interest rate will also affect the amount of money that you can borrow.

How will I receive the money from a Reverse Mortgage?
You will generally have three different options when choosing to receive money from a reverse mortgage. All of the amounts will be determined by the above criteria. Monthly payments, Lump sum, and Line of credit

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