4 Ways to Pay Off Your Mortgage Early


Paying off the mortgage early is in. Refinancing to take money out of your home is out. Having lived through the foreclosure crisis, more people want the security and the psychological benefit of owning their home free and clear.

If you want to pay off your mortgage early, you’ll find plenty of experts recommending ways to do it. All strategies work, but you’ll find some methods of paying down your mortgage are safer, faster and more painless than others.

Compare these four ways you can pay off your mortgage early, starting with the simplest and moving toward the most complex.

  1. Just pay more

If you want to see magic, start playing with mortgage calculators and see how adding a little payment to your principal here and there can shorten the length of your loan. You can use Bankrate.com’s mortgage loan payoff calculator to see how $100 or any other amount added to your payment reduces your interest and shortens the length of your loan.

If you pay a little more principal, you get a bonus. The lower your principal gets, the more every payment from then on is applied to principal, as less goes to cover interest expense.

If nothing else, round your payments up, recommends Tracy Piercy, CFP and CEO of MoneyMinding.com. She says that when people have a payment for $644, they think of it as $650. Why not just pay $650, then? An extra $6 a month on a $200,000, 30-year loan can save you four payments at the end of the mortgage loan.

When you pay extra, make sure the extra is applied to the principal balance, not just set aside for the next payment. And before you make extra payments, read your contract and make sure you won’t have to pay prepayment penalties.

  1. Refinance to a shorter-term loan

You can refinance into a mortgage for 10, 15 or 20 years, but 15-year mortgages are the most common. Your payments will be higher on a 15-year loan, but perhaps not as high as you think, especially since they often offer lower interest rates.Rent or buy a home?

One advantage of a 15-year loan is that you’re committed to the higher payment. There’s no dithering about whether you can afford to pay extra this month.

With a 30-year, $100,000 loan at 5 percent, your principal and interest payments are $537. At the same rate, but on a 15-year payoff schedule, your principal and interest payments are $791. That’s $254 more a month.

To get the effect of a shorter-term mortgage without the risk, take out a 30-year loan, but make payments as if you had a 10- or 15-year loan. “You just make increased payments. You’re in control, not the bank,” Piercy says.

Bankrate.com’s 15- or 30-year mortgage calculator can help you compare loans.

  1. Switch to biweekly payments

Biweekly payments take advantage of the fact that there are 52 weeks in the year and 12 months. If you pay half your regular mortgage payment every other week, you’ll have made 26 half-payments, or the equivalent of 13 full monthly payments, at year’s end.

See how it works with Bankrate’s biweekly mortgage calculator. The extra annual payment can chop off about six years from a 30-year mortgage.

You shouldn’t have to pay an outside company to set it up for you. “I hate the idea of having to pay a third party for something the consumer(s) can do on their own,” says Cathy Pareto, MBA, a Certified Financial Planner in Coral Gables, Fla. “Why pay the extra fees if you can avoid them and still accomplish the same goal?”

Check if your bank will set up a biweekly payment plan. Some banks do it for free; others charge. Ask the bank to credit extra payments toward principal so you save more on interest expense. Some banks set aside extra payments until the end of the year.

  1. Use a money merge account (the Australian method)

In Australia, mortgages are generally set up like home equity lines of credit, or HELOCs. They double as checking accounts, thus the term “money merge.” When you get paid, you deposit your check into the account, and as you spend money you take it back out again. You hope to put more money in every month than you take out.

With a mortgage using the Australian method, interest is calculated daily instead of monthly, and because the money spends as much time as possible in the account before you take it back out to pay bills, you save on interest expense.

Some money merge programs require you to buy software for thousands of dollars. However, there’s no magic formula for shifting your money around. “You don’t need software to do that,” Piercy says.

The biggest downside to the money merge plan is that it requires discipline. “You wouldn’t do it unless you understood cash management,” Piercy says.

By Sally Herigstad of Bankrate.com



6 Savings Tricks That Can Backfire


While reviewing your finances, you may struggle to find reasons why your budget isn’t working. Everyone loves saving money, but the way you cut back can make a big difference. In fact, certain budget habits can actually cost you dearly.

Even the best saving intentions can lead to financial flubs, it’s all about executing them correctly. Here are a few ways you could sabotage your own budget.

  1. Leaving No Wiggle Room

While it is likely you can stand to spend less each month, you don’t want to force yourself to stick to a budget that leaves no breathing room for special occasions, entertainment or indulgences. It’s important to make plans based on your real life and to create a budget you can stick to. A too-tight budget will often backfire as your desire to spend will catch up with your desire to save and leave you splurging.

  1. Buying for the Sale

When it comes to necessities, buying items in bulk or on sale can be a great way to save — but if you get into the habit of buying things you don’t really need because of the sale, that great deal is actually costing you money, especially if you’re doing it to earn credit card rewards. Remember that frugality is about value, not consumption. You have to buy in regards to what you use.

  1. Paying for Coupons

Savings websites can be great when you are looking for a deal, but you may end up getting less than expected. Between Groupon, LivingSocial and Coupon Clippers, you can spend hundreds on deals you don’t need and might not even use before they expire. Try to avoid getting coupons or deals for products and services you aren’t sure you will use and read the guidelines carefully for the ones you will.

  1. Using Store Cards

Almost every major retailer has their own store credit card that allows you to save on a purchase the day you open it. Getting 10% or 20% off may seem like a great deal, but some of these cards can be costly in the long run. Store-branded credit cards tend to have higher interest rates than bank cards so if you don’t pay off the balance on time, you may be paying interest equal to what you saved anyway. If you are only using the card sparingly for major purchases you can pay in full, it can help you save, you just need to use the card wisely.

Store cards often are easier to qualify for than regular credit cards, so they can be particularly attractive for those with bad credit.

  1. Buying Cheap

There is a reason they say “you get what you pay for.” When you cut costs by buying the cheapest possible everything, you may find that you are replacing those items sooner than if you had just paid more for higher quality. When you’re shopping with a tight budget, it’s important to not only think of price — but also of value. If you can afford it, it’s a good idea to choose items that will last longer and function better.

  1. Over-Saving in Your Emergency Fund

It’s definitely important to have some money set aside in case of an emergency. While it is rarely bad to have too much money tucked away, having it all in a low-interest checking or savings account may be costing you. It’s a good idea to research other options that may yield higher interest and still give you relatively easy access to your funds.

Remember that saving money will take time — do not let yourself get misled by opportunities to save that actually cost you money.

By AJ Smith


Anthem Education Files for Bankruptcy

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Anthem Education, a for-profit chain of colleges and career institutes, filed for bankruptcy Monday, September 1, 2014. The company has abruptly shut down a number of its campuses, including locations in New Jersey, leaving state agencies struggling to funnel displaced students into other institutions.

Anthem had 41 campuses, but prior to declaring bankruptcy the company sold 14 campuses to International Education Corporation.

One of the major contributing factors forcing Anthem to file for bankruptcy was years of enrollment losses. In fall 2006 the company enrolled 21,969 students, according to a 2012 report. In 2010 Anthem campuses enrolled 12,792 students, but now serve roughly 10,000, even though it added 11 campuses in 2012. Anthem estimated its assets at between $1 million and $10 million and has between $50 million and $100 million in debts.

The moment the company declared bankruptcy, all Anthem institutions because ineligible for federal financial aid. Considering that financial aid accounts for 90 percent of Anthem’s revenues, the company may now be forced to close additional locations. According to bankruptcy petition, Anthem expressed hopes to keep 28 campuses up and running.