4 Ways to Quickly Get Rid of the Mortgage – Part 1
I’ll never forget the day that I signed my first home mortgage. I financed such a large amount of money that I couldn’t really comprehend the amount. That day I only knew two things: I wanted to purchase a house and the bank was willing to lend me the money. It wasn’t until after I made my first mortgage payment that I realized just how much this debt was going to cost me. As I begin to discover the enormity of this debt, I set out to find ways to eliminate my mortgage quickly so that more of my money would be applied to the principle balance instead of the interest.
It’s my hope that this series can help you eliminate what is usually the single largest expense in the household budget and free that money up to much greater things!
PART ONE – Lower The Interest Rate
One key way to quickly getting rid of the mortgage is to have an excellent mortgage interest rate. Current mortgage rates are still near an all time low. CNNMoney’s has an excellent online calculator that can be used to evaluate different refinancing alternatives to see which one is best for your situation. It can be obtained HERE.
Just lowering the interest rate by 1% on a $100,000 mortgage will save nearly $1,000/year! That, my friends, will spend just like money and I would much rather apply that money toward principal reduction or funding a dream than sending it as a gift to my mortgage lender!
Another great tool is the Early Pay-Off Calculator located on our website under the Tools tab. This tool will show you how much more quickly you can pay off your loan if you obtain a lower interest rate.
This can seem very basic, but it is easy to get caught up in the day-t0-day bustle of life and miss one of the key ways to eliminate the mortgage more swiftly!
3 Ways to Save Money – Part Three
During this series, I’m sharing PROVEN and PRACTICAL techniques that have helped people save money.
PART ONE – Automatic Draft From Paycheck
PART TWO – Create an Escrow Account For Known, Upcoming Expenses
PART THREE – Establish Accountability
Find someone who is (1) winning with money, (2) not trying to sell you something, and (3) available to help you. Ask them to hold you accountable to your saving goal. I have seen some people go to the extreme length of actually giving the money to the other individual to hold for them because they cannot trust themselves to keep their own hands off of it.
Accountability can also be created by your written spending plan that you prepare every month before the month begins (you do prepare one, right?). This plan helps cement your goals in your mind and helps you connect the fact that if you spend money on unplanned items, you will literally be robbing yourself of your savings goals.
I am married – this means I have built-in accountability. Jenn is a huge saver. She keeps me (the spender) in control. Establish accountability – it works!
3 Ways to Save Money – Part Two
During this series, I’m sharing PROVEN and PRACTICAL techniques that have helped people save money.
PART ONE – Automatic Draft From Paycheck
PART TWO – Create an Escrow Account For Known, Upcoming Expenses
For those unfamiliar with an escrow account, it is a savings account that is generally established by a mortgage company. The mortgage company totals the annual cost of property taxes and homeowner’s insurance and divides it by the number of payments being made each year. The mortgage company then pays for the taxes and insurance from this escrow (savings) account. For example, if the property taxes are $1,200/year (sorry Northern folks – this is how low they are in the South) and the insurance is $600, then the total amount needed each year is $1,800. The mortgage company will collect $150 extra with each monthly payment to place into the escrow account.
An escrow account smooths out the cost over a year – instead of having to pay for it all in one month. It tightens the monthly budget, but having a fully funded escrow account sure is AWESOME when vacation arrives and the money has already been saved to pay cash for it! Those who have a mortgage with an escrow account will testify to the fact that they never worry about paying for the taxes and insurance – ask someone!
Take it from one who has lived it – if you do not plan for your known, upcoming expenses, your ability to save money will be tremendously hampered!
Related Tool – Known, Upcoming Expenses Calculator
3 Ways to Save Money – Part One
One of the largest issues I see during one-on-one financial coaching is the inability to save money. Saved money is essential to long-term sustainability. Saved money relieves stress and allows you to take a chance. Saved money allows life to happen (job loss, disability, pay cut, injury, etc.).
But you already knew that part. Yet, even though we KNOW how important it is to save money, most people fail to do so. So, I wanted this series to focus PROVEN and PRACTICAL techniques that have helped people save money.
If you have negative savings (no money plus overdrafted accounts and debt), the goal is to bring you to zero. If you are at zero, the goal is to get to at least $2,500. If you have been able to save a substantial amount of money, it is my hope that you will participate in the discussion and share your own tips that have worked well for you!
PART ONE Automatic Draft From Paycheck
Establish a savings account and have the money drafted from every single paycheck. Whether it’s $25 or $250 per pay period – just SAVE! You KNOW that the car is going to break down. You KNOW that the school is going to send home a surprise expense.
By establishing this draft, it allows the money to be “out-of-sight.” When money is out-of-sight, it can be out-of-mind. This allows the account to grow without being robbed.
Now, I personally had a problem with this when I did not have a monthly budget. I would ROB my own savings account about 2.1 microseconds after I was paid. My account did not start growing in a healthy manner until after Jenn and I developed a plan that we agreed on.
How about you? Is your paycheck set up for an automatic draft into your savings account?
Is Your Money Making Money For You?
As I described in my book, Oxen: The Key to an Abundant Harvest, you truly begin winning with money when your “money makes money for you”.
With that said, here’s a great question to ask yourself: “How much interest is my bank paying me for the money in my savings account?”
Chances are high that the number is 0.01%. In fact, I checked several large banks and here’s what I found for their basic savings accounts:
- Bank of America – 0.01%
- Wells Fargo – 0.01%
- Bank of the West – 0.01%-0.02% (Depending on the state you live in)
This is why I hold all of my business and personal savings in ONLINE BANKS. This is not a “bank with website access”. They are banks that exist almost exclusively online. Since they do not have physical buildings, they have to do extraordinary things to attract customers, like offer higher interest rates. You can check out my top 5 reasons why I use online banks HERE.
Let’s look at an example. Let’s say you put $2,500 (one month’s of expenses – Rung 2 of the IWBNIN Ladder) into a savings account today. In one year you could earn almost $25.00 in interest from an online bank vs. $0.25 from one of the large banks. I’d say that’s a great deal! Now that might not seem like a significant amount of money to you but it’s free money and every little bit helps! Also, remember this is your savings account, not an investment account.
With this information, I’d encourage you to do 2 things:
- Find out how much interest your bank is currently paying on your savings.
- Check out the online banks that we recommend HERE.