It's hard to see why anyone would pay good money these days to have someone else help them reduce their mortgage term. With the proliferation of mortgage calculators on the Internet, it's simple to figure out multiple variations yourself.
Suppose, for example, that you have a 30-year mortgage and you want to reduce the term to 20 years without paying big bucks to refinance or to get a biweekly mortgage or to have the lender do the job for you.To figure out how much more you'll have to pay to get the job done, first find out what your mortgage balance is - how much you still owe. That may be on an amortization sheet you got at the closing, or your lender may send you monthly updates with your mortgage bill. If you can't find the figure, call the lender's 800 number and get it.
Then note how much you're paying each month in principal and interest. Make sure to leave out any payments you make for property taxes and insurance - anything that goes into an escrow account. And take note of your interest rate.
Once you have these figures and have located a mortgage calculator, you're ready to play:
- Plug in the amount of principal you owe, the interest rate you're paying and the number of years in which you want to pay off the mortgage. The calculator will tell you what the monthly payment is. Pay that amount each month starting now, and you'll be mortgage free in however many years you have chosen - 10, 13, 16, 18, 22, whatever.
Here's an example of how it can work. You bought a house five years ago with a $135,000 mortgage for 30 years at 7.5 percent interest. Your monthly payment (principal and interest only) is $943. By now, your principal has been reduced to $127,733 and you still have 25 years to go on the mortgage.
You can cut that down to 15 more years by paying $1,184 a month from now on. If that's too steep an increase, try 18 years and a payment of $1,079. Still too much? Reduce the term to 20 years and the payment is $1,029 - just $86 more than you're paying now.
The best calculator I've found online to do these calculations is at (http://www.hsh.com), run by the mortgage information company HSH Associates. If you go to the site, choose financial calculators and then prepayment calculators. Don't use any commas in your figures.
If you have any version of Quicken, you can do the calculations without going online. Choose plan, financial planners and loan.
For those without a computer or any desire to do the calculation, there's a simpler though less precise way to reduce the mortgage term. Just divide your monthly mortgage payment by 12 and add that amount to the payment each month. Or send in one full extra payment each year. That will reduce a 30 year mortgage to 23 or 24 years.