Do you currently have a mortgage payment that you make each month? Have you ever figured out how much you will actually pay for your house after all the principle and interest payments over the full term of the loan? If you bought your house for $200,000, even with a 4% interest rate you will pay almost $400,000 over the 30-year term of the mortgage! What if I told you that you could reduce that by $100,000? Sounds too good to be true right? It’s not. In fact, it is fairly simple.
Saving Money on Those Pesky Interest Payments
Even with a low interest rate, you still end up paying hundreds of thousands of dollars in interest payments over the course of your home mortgage. But, whoever decided that a 30 year mortgage is the best way to go? What if you shrink down the time-frame of the mortgage payback? True, you might pay a few hundred extra dollars each month, but the savings on interest is phenomenal!
Think about it. When you decide to start investing in your company 401k, what is the most important thing they always tell you? To start early. Let the interest work to your benefit. When borrowing money, you need to think the opposite. To save on the interest payments, you will want to pay off your home as soon as possible. Instead of a 30 year mortgage, consider a 15 year mortgage. Or, if you are able, take a look at the 5 year mortgage rates in Canada. Not only will you be debt-free sooner (which will improve your cash flow each month), but you will also save a ton of money on interest!
Live Well Below Your Means
One of the more radical options that very few people think about is living well below their means. Instead of always buying a bigger and better house, why not downsize or live a little farther out of town? By owning a smaller house that costs less, you will obviously save money on your mortgage payments, but there are many other savings that go along with this as well:
- Save on cleaning costs
- Save on heating/cooling costs
- Save on maintenance costs
- Save on insurance costs
- Save on priceless time!
By owning a smaller house, you provide yourself with much fewer expenses and let me tell you, it’s amazing. My friend bought a home a few years ago for just $75,000 and he will likely pay it off by the end of this year. The property is easily managed and is very cheap to heat and cool (with the smaller size). In a couple of years he will need to get the roof replaced, but since the roof is a fairly low square footage amount, a complete redo will only cost $5,000 instead of the usual $15,000+ for an average home. And, with a cheaper house, there is a lower cost to insure it. Finally, my most favorite advantage is time. With such an easily managed property, he can easily come and go without even thinking about anything. His time is priceless and enjoys the fact that he does not need to waste time cleaning and fixing a mansion.
So if you haven’t bought a house yet, step one is to buy one that is well within your means, then pay it off quickly and enjoy your life! You’ll likely learn to love your house and most importantly, you’ll love your life.