Wonderful World of Mortgage Payments

Born in India, I was brought up in a society/ulture that never liked debt. Now living in the USA, I could not avoid debt for long time. I gave a tough fight but when I bought my home, I had to have a debt.

Surprisingly in the USA, there are two numbers very important for you: Naturally, the first number, is your Social Security Number and the second one is your average credit score. (There are three consumer credit rating companies so you have 3 credit scores as such but average score is the one that counts.). Social Security Number (SSN) is a boring number; once you get it, you are stuck with it for your life but you have to save it as precious as life. On the other hand, if you have a high credit score, it can give you bragging rights among your friends. There are so many strategies out there on talk-shows, in books, in magazines and on the Internet trying to teach you how to improve your creditbility/ credit score. There is one Credit Score expert around you wherever you happen to be- usually within 10 feet of you or only 10 digits away! Talk to 3 people around you in a gathering or at workplace, or talk to any 3 friends on phone, and I bet you one of them would give you some solid tips on credit scores! I am just trying to highlight how much our attitude has changed towards debt. (Not surprisingly, this credit thingy has extentended USA's prosperity by at least two solid decades in my opinion.Usually you earn first and then you spend but with credit/debt, you spend first and then you are supposed to pay with your future earnings. This kind of bringing forward consumption on the timeline can cause/extend economic boom in any country. Sounds confusing? Wait for my next posting on my webpages)

Most of us living in the USA pay Mortgage payment every month. It is part of the American dream- dream of owning a home. That not only gives you a home, but helps American economy in a big way. When you purchase, usually 6% of that amount is paid to brokers, around $5000 gets paid in terms of closing costs to variety of parties, when you sell, there is another 6% paid to brokers, and then every year, around 1 to 2% gets paid in the form of property taxes to state and local governments. Knowing or unknowingley, each of home buyer is doing a lot of good to the American society and contributing his/her dues to maintaining standards of living in the USA. We embrace this mortgage debt on the wonderful selling point of Internal Revenue Service (IRS)- "deduction of mortgage interest"! This whole cycle works very well- for you as well as for others.

Anyway, the purpose of this page is to play around with some numbers and to do some financial math that can help you save some money.

TRICK 1: Mortgage payment voucher comes in the mail every month with a due date of 1st of the month but did you know that you usually get 15 days of grace period to make your payment? I believe most of us pay on the 1st itself. We don't care of 15 days worth of holding onto our monthly mortgage payment. Now if you decide to delay your payment by 15 days each month, what kind of benefits do you have? Most of you would immediately tell me that it is not worth the trouble. But if you try to put some financial sense into this, I am sure you will get surprised by the magic of compounding.

If you don't care about paying 15 days late, I am sure you can stretch yourself and pay 15 days earlier too. I mean to say that if you are planning to pay your next mortgage payment on say 1st of May, please pay it on 15th of April instead and then on every 15th of the month. Now the payment you make on 15th of April, mark it as payment towards your principal. Do you know how much wonders this will do overall?

Let us run some numbers on the following scenario:

Assume this is your mortgage:

You are supposed to pay 2398 every month till January 2038:

Now instead of paying on the 1st, you change to pay it on 14th of the month and somehow squeeze in one payment by paying it early towards your principal.

Do you know that this "15 days doesn't matter" would save you full 5 monthly payments at the end? Plus, $2000 on the last payment you make?

Sounds confusing? Please email me:

* Assumptions:
---> You will be punctual in paying by 15th. If you fail, there is some penalty. However with Automatic setup online, this is no longer that difficult as such. I would adivise to try to pay by 14th of the month.
---> It is assumed that you are currently paying by 1st of the month and you have no financial difficults in paying that monthly bill 15 days earlier each month. As said, no pains no gains, and there is never a free lunch in financial markets.
---> It is important that the first time you pay on 15th, you mark it as a payment towards Principal amount else all these benefits will accrue to your lender instead of you.

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