Author: David Berky

Article:
Interest on the average home mortgage will cost the homeowner
nearly TWO TIMES the cost of the home.

If you were to purchase a $150,000 home with a $120,000 mortgage
(80%), and you paid an interest rate of 9% for 30 years, you
will have paid over $227,500 just in interest (in addition to
the original $120,000). That's nearly two times the cost of the
home!

A credit card debt of $7000 (now the average) at 18% being paid
at the rate of $20 principal plus interest each month will take
over 29 YEARS to pay off, almost as long as a home mortgage.
Interest charged on this credit card debt will top $18,400, more
than 2.6 TIMES the original debt!

If you work for a living, you know that when you are not
working, you are not getting paid. But interest never gets sick,
never takes a vacation and never sleeps. It is working against
you 24 hours a day, seven days a week, each and every day of the
year.

So what can you do?

You may not be able to pay off your debts or mortgage now. You
may not have enough equity in your home for a loan. You may not
be able to afford the refinancing costs or home equity loan
costs. You may not be able to lower your credit card interest
rates.

But you can make additional or extra payments.

So how does making an extra payment help lower your interest
charges? Is it going to make next month's bill smaller? You
can't scrape together too much for an extra payment so how is
just $10 going to help when you owe tens of thousands?

The secret is in making early and consistent extra payments. For
example, on the home mortgage shown above, if you pay an
additional $100 each month you will save over $82,000 in
interest payments. Not only that, but you will also have your
home paid off nine years and two months earlier. You knock
nearly 10 years off your mortgage just by paying an extra $100 a
month.

How does that work?

Well, that $100 extra you pay the first month would have cost
you about $270 in interest to borrow for 30 years. Since you
have paid it already, you can reduce your last mortgage payment
by $270. The next month's extra payment will reduce your last
mortgage payment by $268. Each month as you pay that extra $100,
your final mortgage payment will be reduced until you won't need
to make a final payment, then the second to last payment, then
third to last and so forth. Soon you will have shaved years and
thousands of dollars in interest charges off your mortgage.

That's great, but maybe you can't spare $100 each month. How
about $50, $25, or even $10? An additional payment of $50 each
month will save you five years and seven months and about
$52,000 dollars. $25 each month will cut your time by three
years and three months saving you about $30,000. Just $10 a
month will reduce your time by one year and three months and
save you over $13,500.

Every little bit helps. Some months you may only be able to add
$10 to your payment; some months you may be able to add $200.
And this applies to interest on credit card payments or any
other kind of debt repayment. Paying down as much of the
principal (or amount you owe) each month will help reduce the
interest you are charged and the length of time it takes to pay
off the debt.

So why don't the credit card companies charge you more of the
principal each month?

How would you like to be making 18% on an investment? Wouldn't
you want this investment to last as long as possible? Of course!
So do the credit card companies. They are happy for you to pay
off your balance, but even more excited for you to keep paying
them that 18% interest.

There are some other interest tips and tricks.

- One trick your mortgage company may have played on you is to
include a prepayment penalty in your mortgage. If you try to pay
off your mortgage early they may actually charge you for doing
so. Or they may only apply part of your payment to the principal
and take the rest as a "service charge."

- Make sure when you make an additional payment that you send a
check separate from your monthly mortgage payment with
instructions that the amount is to be applied toward the
principal of your loan. Otherwise they may just apply it towards
next month's payment and still charge you the interest.

- Generally you will not have this problem with credit card
companies. But watch out for late payments or going over your
credit limit. They may then use these "rule infractions" as
cause to raise your rate to over 25%!

- If you are looking to refinance your mortgage, look for a
mortgage that lets you pay on a bi-weekly basis. Since many
people receive a bi-weekly paycheck this also makes it easier to
budget your money. If you are paying every two weeks you will
make an additional monthly payment each year (26 bi-weekly
payments vs. 12 monthly payments). Also, because you are paying
the principal down every two weeks rather than every month your
interest charges will be reduced.

You CAN take control of your interest charges. Make those extra
monthly payments. The feeling of being debt-free will far
outweigh the temporary pleasure of that burger, movie or new
DVD-player.

About the author:
© Simple Joe, Inc. David Berky is president of Simple Joe, Inc.
One of Simple Joe's best selling products is <A
href="http://www.simplejoe.com/moneytools/index.htm">Simple
Joe's Money Tools - a collection of 14 personal finance and
investment calculators</A>. This article may be freely
distributed so long as the copyright, author's information and
an active link (where possible) are included.

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