A cup of coffee a day could be costing you over $100,000
September 7, 2009 – 11:50 am
Of all the expenses and pays, the mortgage has to be one of the largest and the longest term. It therefore stands to reason that this single expense has the potential for providing one of the largest long term savings. Most property is purchased using a 10, 15, 20 or 30 year loan. For the longer term loans, the total amount paid can be over double the original amount borrowed, dependant on the actual mortgage interest rate. For example, on a 30 year $100,000 loan at 6% the total amount paid is over $200,000.
The great news here is the potential for saving. By marginally increasing the mortgage payment you make every month, the term can be dramatically reduced, saving a huge amount of interest.
For example, the payment on the loan illustrated above would be $599.55. If the actual payment made is increased by just $100 per month, the term reduces to 21 years; a saving of $40,000 in interest.
Furthermore, if you took full advantage of this and invested what you would have normally paid for those 9 years at the same interest rate of 6%, the total in the savings account at the end of the period would be $100,000!
The real savings come with making more substantial accelerated payments. Here is a table giving the result for various overpayments on the same loan:
| Mortgage | Term | Payment | Total paid | Over payment | New term | Interest saved | Total in saving after original term |
| 100,000 | 30 | 599 | 215,000 | 0 | 30 | 0 | 0 |
| 100,000 | 30 | 599 | 175,000 | 100 | 21 | 40,000 | 100,000 |
| 100,000 | 30 | 599 | 157,700 | 200 | 17 | 57,700 | 211,000 |
| 100,000 | 30 | 599 | 168,700 | 300 | 14 | 68,700 | 291,000 |
| 100,000 | 30 | 599 | 139,000 | 400 | 12 | 76,000 | 426,000 |
In conclusion, the opportunity for turning the largest household expense into the largest savings vehicle is substantial. Even if you are on a tight budget, by forgoing that one cappuccino at Starbucks every day, you could increase your payment by $100 a month. Who knows, by looking a little deeper you could realize a way to multiply this substantially. I myself have reduced my 15 year mortgage to 3 years 9 months using the above technique, and that includes one year at the normal payment!
Have a great week!
Article by : Malcolm Guest author
