It's estimated that you will spend 34 percent of your hard-earned money on interest payments over the course of your lifetime. While you will pay interest on a number of things, including credit cards, car notes and student loans, you will pay a staggering amount of interest for your mortgage. A typical 30-year, $100,000 mortgage with a low interest rate of 4 percent will cost you approximately $72,000 in interest payments. If you can find strategies to lower your interest obligation on your mortgage, you can save a great deal of money and pay off your home sooner. Following are three ways you can drastically cut your loan interest.
Fortnightly Repayment Option
Any time that you can pay extra on the principal balance of your loan, you will save lots of money in interest. In addition to sending in extra money along with your monthly mortgage payment, you can repay your loan on a fortnightly or weekly basis. Doing so will make it possible for you to make one full extra payment toward the principal balance of your loan annually.
It may not seem like much, but it really adds up. On the loan mentioned above, making bi-weekly payments would shave four years and nearly $11,000 in interest off your mortgage. If you can pay $100 extra a month, you can save $22,000 in interest and pay off your loan 8.5 years sooner.
Offset Loan Option
You can lower your interest burden by taking out an offset loan mortgage. An offset loan is a mortgage that is liked with another account, most often a savings account. If you keep a balance in your savings account, your mortgage interest will be calculated based on the principal balance of your loan minus the amount in your linked savings account. If you have $10,000 in savings, you will not have to pay interest on $10,000 of the principal amount of your mortgage.
Short Term Mortgage
Mortgages are available with 30, 20, 15 and 10 year terms. If you select a loan with a shorter payoff timetable, you will have a higher mortgage payment, but you will pay a lot less in interest over the course of your loan. Using the above loan scenario, a 15-year mortgage will cost $33,000 in interest rather than $72,000 in interest, the rate for a 30-year mortgage.
There are multiple ways to lower the amount that you will pay in interest over the course of your mortgage. Considering that you many people pay almost as much in interest as they do principal, lowering your obligation is the smart thing to do. Contact a loan provider, like FCN Bank, for more information.