I was recently cornered in the yogurt section at Kroger and had the following question posed to me (I’m 
paraphrasing the actual question and I obviously calculated the actual savings when I got home): “My mortgage company periodically sends fancy fliers encouraging me to change my monthly payments to automatic biweekly or bimonthly payments. I usually toss these mailings into the recycle pile, but am beginning to wonder if I should explore them a bit more. Is it really worth making extra payments on my mortgage?”
My answer: I hope you haven’t shredded that offer. Unless, of course, you frequently shred presidential portraits of Grant and Franklin – you know, the ones found on the 50 and 100 dollar bills. These offers are a legitimate way of saving thousands of dollars on mortgage interest.
There is no magic to these savings, though. You’re simply being sold a system for making extra payments. But you can buy the concept and avoid the sales charge by doing it yourself. (The “sales charges” are the set-up and payment processing fees that can total hundreds or thousands of dollars).
Most mortgage coupons have a place to indicate an extra amount to be applied toward the principal. A similar option is typically available when you have mortgage payments automatically taken from a bank account. So, go ahead and indicate the extra amount you’d like to pay. If you have a bill-paying service available at your bank, simply set up an extra payment as a separate monthly bill.
The small effort really is worth it. Here’s why: A 30-year, $100,000 mortgage at 6% costs $599 per month and $115,838 in interest over those 30 years. Make one extra $599 payment per year, divided equally over the 12 monthly payments, and you’ll shave 5.5 years off the life of the mortgage AND save almost $24,000 in interest. Even an extra portrait of Hamilton ($10) applied each month will save you $6,077.
Think a $6,000 savings over 30 years isn’t worth the effort? Ask any millionaire and she’ll tell you, “it ALL matters.”
To calculate how much you can save, click on http://www.bankrate.com/ and use their free mortgage calculator. To learn all about personal finance, catch me in the dairy section, or maybe just try visiting me online.
D. DRUMMOND OSBORN, CFP is a founding partner of OSBORN Wealth Management, a LaPorte-based Registered Investment Advisor, where he focuses on retirement planning and investment management. Visit him on the web at www.osbornwealthmanagement.com or e-mail your questions or comments to drummond@osbornwealthmanagement.com.
