Here's Something You Can Do Now
Many homeowners would like to pay down or pay off their mortgage. Maybe you're one of them. With rising costs for fuel, food, health care, and just about everything else we need to maintain our lifestyle, it's hard to find the extra money to put toward the mortgage. Prudence suggests that we shouldn't take money from savings either. A secure income today may not be tomorrow.
So what are the choices? Here's an idea you should look into.
The advantages of paying down or paying off your mortgage are pretty clear, but where does the money come from? Believe it or not, it comes from the bank. Here's how.
You can go to your bank or one of the local branches of one of the major banks and get a home equity line of credit. With this credit line you will also get a debit card. When you get paid, instead of putting the money into your checking account to pay your bills and living expenses, use the debit card from your credit line to pay those things, then deposit your pay check back into the line. Now, use part of the credit line to pay down some extra principal on your mortgage.
Next time you get paid do the same, make sure you pay your regular mortgage payment when it's due, again from your credit line.
This might sound like a strange way to do things, and you may wonder how you can get ahead when you now have two loans rather than one, especially when the interest on the credit line is higher than on your mortgage. Fair question. This is why it works.
Let's say that you owe $200,000. on your 30 year first mortgage at 6% interest. That comes to $1000.00 in interest per month that you pay. The rest of your payment is Principal.
The line of credit you just got is at 9% interest.
The difference is that you pay interest only on the money you use from the credit line and only for the time you use it. Whereas on your mortgage you always pay interest on the whole amount outstanding.
If you pay $3,000. from your line toward your mortgage, and 15 days go by before you get paid and deposit your check back into the line and meanwhile you've paid another %1,500. in living expenses, you'd owe a lot less interest on the line then you do on the mortgage.
Then, by depositing your pay check back into the line, the interest you owe on the line is negligible, and the extra principal you've paid reduces the interest you owe on your mortgage.
So what you've done is reduced the interest you owe on your mortgage, gained $3000. in equity, (that's available for you to use in an emergency if necessary) and you did it with the bank's money for less than lunch money out of pocket.
Keep doing this, and use your credit line only this way, and you'll pay your mortgage fast with the bank's money, at little cost to you.
Although the information presented here is believed to be accurate, it may not apply to your situation. you're advised to consult with an accountant/tax professional for details that apply to you.
Many homeowners would like to pay down or pay off their mortgage. Maybe you're one of them. With rising costs for fuel, food, health care, and just about everything else we need to maintain our lifestyle, it's hard to find the extra money to put toward the mortgage. Prudence suggests that we shouldn't take money from savings either. A secure income today may not be tomorrow.
So what are the choices? Here's an idea you should look into.
The advantages of paying down or paying off your mortgage are pretty clear, but where does the money come from? Believe it or not, it comes from the bank. Here's how.
You can go to your bank or one of the local branches of one of the major banks and get a home equity line of credit. With this credit line you will also get a debit card. When you get paid, instead of putting the money into your checking account to pay your bills and living expenses, use the debit card from your credit line to pay those things, then deposit your pay check back into the line. Now, use part of the credit line to pay down some extra principal on your mortgage.
Next time you get paid do the same, make sure you pay your regular mortgage payment when it's due, again from your credit line.
This might sound like a strange way to do things, and you may wonder how you can get ahead when you now have two loans rather than one, especially when the interest on the credit line is higher than on your mortgage. Fair question. This is why it works.
Let's say that you owe $200,000. on your 30 year first mortgage at 6% interest. That comes to $1000.00 in interest per month that you pay. The rest of your payment is Principal.
The line of credit you just got is at 9% interest.
The difference is that you pay interest only on the money you use from the credit line and only for the time you use it. Whereas on your mortgage you always pay interest on the whole amount outstanding.
If you pay $3,000. from your line toward your mortgage, and 15 days go by before you get paid and deposit your check back into the line and meanwhile you've paid another %1,500. in living expenses, you'd owe a lot less interest on the line then you do on the mortgage.
Then, by depositing your pay check back into the line, the interest you owe on the line is negligible, and the extra principal you've paid reduces the interest you owe on your mortgage.
So what you've done is reduced the interest you owe on your mortgage, gained $3000. in equity, (that's available for you to use in an emergency if necessary) and you did it with the bank's money for less than lunch money out of pocket.
Keep doing this, and use your credit line only this way, and you'll pay your mortgage fast with the bank's money, at little cost to you.
Although the information presented here is believed to be accurate, it may not apply to your situation. you're advised to consult with an accountant/tax professional for details that apply to you.