Tip #2: Shorten Your Amortization Period

This Tip can be a bit more painful in the wallet, but it can also have dramatic effects on how much money you save in interest and payments. By reducing your amortization period by just 5 years you can, once again, save thousands of dollars.

You can instruct your bank to do this on anniversary dates or when your current term expires. Some institutions will allow you to change this at any time but may charge a penalty for doing so. Some banks will offer it as an incentive to attract new business.

Example
Based on a $100,000 mortgage at 6.00% interest for a 5-year term amortized over 25-years:
• Your monthly payment would be $639.81
• You would pay $28,225.07 in interest over the first 5 years
• You would pay $10,163.50 in principle over the same 5 years

Implementing a Shorter Amortization Period
Based upon the same $100,000. @ 6.00% interest for a 5-year term amortized over 20 years:
• Your monthly payment would be $712.19
• Your total interest paid in 5 years amortized over 20 years would be $27,527.47
• You would have paid a total of $15,203.93 in principle over the first 5 years

What You Will Save
• Once again you save $697.60 in interest and save 5 years of payments
• You also pay an additional $5,040.43 in principle over 5 years

This method would cost you $72.38 more each month, but look at the savings. Could you spare $72.38 extra to save you that much money? The savings could be used for your retirement or eventual profit from the sale of the house.

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