How to Pay Your Mortgage Off in Half the Time

How to Pay Your Mortgage Off in Half the Time

 

You can easily cut your mortgage in half by making one extra principle payment each month.  A 30 year mortgage can be reduced to 15 years.

 

How it Works.

 

When you pay your monthly mortgage payment of principle and interest pay a second amount for the principle portion of the mortgage that is due the following month.  Generally your mortgage is a fixed amount e.g. $1,000 per month.

 

In the Amortisation Schedule example below you can see that the principle payment for the first month is $88.47 and the interest payment is $1,666.67 and the total payment for the first month is $1,755.14. 

 

Using this strategy you would pay the $1,755.14 and $89.21 (second principal payment) in the first month.  In the second month you would pay the $1,755.14 and $89.95 (third principal payment) in the second month and so on until you have paid the loan off in half the time.

 

By doing it this way you do not need to pay interest on the principle amount for the next month.

 

You will need to get an amortisation schedule from your lender to do this strategy.

 

Example Amortization Schedule

Loan Date: 11/25/2008 Principal: $200,000.00 # of Payments: 360 Interest Rate: 10.00% Payment: $1,755.14
Schedule of Payments Please allow for slight rounding differences.
Pmt #	Date	Principal	Interest	Payment	Balance
1	12/25/2008	$88.47	$1,666.67	$1,755.14	$199,911.53
Total	2008	$88.47	$1,666.67
2	1/25/2009	$89.21	$1,665.93	$1,755.14	$199,822.32
3	2/25/2009	$89.95	$1,665.19	$1,755.14	$199,732.37
4	3/25/2009	$90.70	$1,664.44	$1,755.14	$199,641.67
5	4/25/2009	$91.46	$1,663.68	$1,755.14	$199,550.21
6	5/25/2009	$92.22	$1,662.92	$1,755.14	$199,457.99
7	6/25/2009	$92.99	$1,662.15	$1,755.14	$199,365.00
8	7/25/2009	$93.76	$1,661.38	$1,755.14	$199,271.24
9	8/25/2009	$94.55	$1,660.59	$1,755.14	$199,176.69
10	9/25/2009	$95.33	$1,659.81	$1,755.14	$199,081.36
11	10/25/2009	$96.13	$1,659.01	$1,755.14	$198,985.23
12	11/25/2009	$96.93	$1,658.21	$1,755.14	$198,888.30
13	12/25/2009	$97.74	$1,657.40	$1,755.14	$198,790.56
Total	2009	$1,120.97	$19,940.71

 

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3 Easy Ways to Reduce Your Mortgage Now

3 Easy Ways to Reduce Your Mortgage Now

Method One – Make One Extra Principle Payment Each Month

You can easily cut your mortgage in half by making one extra principle payment each month. A 30 year mortgage can be reduced to 15 years.

How it Works

When you pay your monthly mortgage payment of principle and interest pay a second amount for the principle portion of the mortgage that is due the following month. Generally your mortgage is a fixed amount e.g. $1,000 per month.

In the Amortisation Schedule example below you can see that the principle payment for the first month is $88.47 and the interest payment is $1,666.67 and the total payment for the first month is $1,755.14.

Using this strategy you would pay the $1,755.14 and $89.21 (second principal payment) in the first month. In the second month you would pay the $1,755.14 and $89.95 (third principal payment) in the second month and so on until you have paid the loan off in half the time.

By doing it this way you do not need to pay interest on the principle amount for the next month.

You will need to get an amortisation schedule from your lender to do this strategy.

Method Two – Make Fortnightly Instead of Monthly Payments

You can reduce your mortgage on a standard 30 year term loan by 8 years just by changing from paying monthly to paying fortnightly. By paying fortnightly you make 26 payments per year instead of 12 payments. If you pay fortnightly this means that you make the equivalent of 13 monthly payments per year. You pay more principle each year and you also pay less interest because the interest is only accumulated over two weeks before a payment is made, instead of over one month. Your principle amount reduces much quicker so you waste less money on interest.

Example
If you have a $300,000 loan at 8% interest on a 30 year loan term you would save over $154,000 and 8 years over the term of the loan.

Note: Your bank or financial institution will not volunteer this information. You will need to specifically ask to make fortnightly payments. Make sure your lender will accept fortnightly payments and will calculate the loan interest based on fortnightly payments.

Method Three – Use Line of Credit or Revolving Credit Facility and Credit Card

What is a line of credit or revolving credit?
A line of credit also referred to as revolving credit is a loan that has a pre-determined limit. If your house is worth $300,000 you may have a credit line with a credit limit of $260,000 secured against your house. Your current mortgage may be $240,000 of this, this means that you have $20,000 that you can draw on and use at any time.

The $20,000 is available immediately and you only pay interest on what you actually use. Many savvy investors leave this money in a line of credit account as an emergency reserve fund, just in case they need money in a hurry.

How it Works
You set up your salary to be automatically paid into this account. During the month you pay all your living expenses using the credit card. At the end of the cards interest free period (generally 30-55 days) you use the line of credit to pay off your credit card in full.

The advantage of the line of credit is that by putting all your salary into the loan account and using the credit card for expenses and delaying paying this as long as possible you will have less principle owing over that time period and you will pay less interest. In addition all of your savings are in this account and are actively reducing your loan amount. You are increasing your home loan payments by putting in every spare dollar. How you manage your money is how you save money.

This strategy works best for people who have a large surplus every month. The larger the difference between amount put into the account and the expenses drawn out the faster the loan principle will be paid off.

Make sure you get your credit card automatically paid at the end of each interest free period so you don’t forget. Never spend more money than you have put in there. Remember that you are 30-55 days behind on payment of your expenses, so make sure you have a cash buffer to pay this if something unexpected comes up.

Warning! Do not use if you do not have good savings habits. You must be able to set and keep to your budget. There is a huge temptation to take out more money each month than you put in. It is very easy to do this. You must be very disciplined as it is very easy to get access to this money. Do not get a line of credit if you are impulsive with your spending or get accumulate credit card debt.

For more tips on how to save and make money get a free DVD by clicking here >>
http://www.21stcenturyacademy.com.au/

Mortgage Minimisation – How to use Line of Credit or Revolving Credit to Save Money.

 

What is a line of credit or revolving credit?

A line of credit also referred to as revolving credit is a loan that has a pre-determined limit.  If your house is worth $300,000 you may have a credit line with a credit limit of $260,000 secured against your house.  Your current mortgage may be $240,000 of this, this means that you have $20,000 that you can draw on and use at any time.

 

The $20,000 is available immediately and you only pay interest on what you actually use.  Many savvy investors leave this money in a line of credit account as an emergency reserve fund, just in case they need money in a hurry. 

 

How it Works

You set up your salary to be automatically paid into this account.  During the month you pay all your living expenses using the credit card.  At the end of the cards interest free period (generally 30-55 days) you use the line of credit to pay off your credit card in full. 

 

The advantage of the line of credit is that by putting all your salary into the loan account and using the credit card for expenses and delaying paying this as long as possible you will have less principle owing over that time period and you will pay less interest.  In addition all of your savings are in this account and are actively reducing your loan amount.  You are increasing your home loan payments by putting in every spare dollar.  How you manage your money is how you save money.

 

This strategy works best for people who have a large surplus every month.  The larger the difference between amount put into the account and the expenses drawn out the faster the loan principle will be paid off.

 

Make sure you get your credit card automatically paid at the end of each interest free period so you don’t forget.  Never spend more money than you have put in there.  Remember that you are 30-55 days behind on payment of your expenses, so make sure you have a cash buffer to pay this if something unexpected comes up.

 

Warning! Do not use if you do not have good savings habits.  You must be able to set and keep to your budget.  There is a huge temptation to take out more money each month than you put in.  It is very easy to do this.  You must be very disciplined as it is very easy to get access to this money.  Do not get a line of credit if you are impulsive with your spending or get accumulate credit card debt.

For more tips on how to save and make money get a free DVD by clicking here >>

 http://www.21stcenturyacademy.com.au/

 

Reduce Your Mortgage By Up To 8 Years Using Fortnightly Payments

 

You can reduce your mortgage on a standard 30 year term loan by 8 years just by changing from paying monthly to paying fortnightly.  By paying fortnightly you make 26 payments per year instead of 12 payments.  If you pay fortnightly this means that you make the equivalent of 13 monthly payments per year.  You pay more principle each year and you also pay less interest because the interest is only accumulated over two weeks before a payment is made, instead of over one month.  Your principle amount reduces much quicker so you waste less money on interest.

 

Example

If you have a $300,000 loan at 8% interest on a 30 year loan term you would save over $154,000 and 8 years over the term of the loan. 

 

Note: Your bank or financial institution will not volunteer this information.  You will need to specifically ask to make fortnightly payments.  Make sure your lender will accept fortnightly payments and will calculate the loan interest based on fortnightly payments.

For more tips on how to save and make money get a free DVD by clicking here >> 

 http://www.21stcenturyacademy.com.au/

 

Call and Put Options, What, Why, How.

 

What is an Option?

 

An option is a contract between a buyer (taker) and seller (writer) of shares giving the buyer the right to buy or sell a security a security at a predetermined price on or before a predetermined date.  The buyer is not obligated to buy or sell the security.  To get an option the buyer pays a price (premium) to the seller of the contract.

 

Generally 1,000 shares are covered by one option contract.

 

An option price is made up of the intrinsic value and the time value.  The intrinsic value is the difference between the current share value and the exercise price.  The time value is the amount you are prepared to pay for the possibility that the share price might move in your favour during the life of the option.  The time value decreases over time and becomes more rapid closer to the expiry date.  An option will generally lose one third of its time value during the first half of its life and the remaining two thirds of its value during the second half.

 

On average less than 15% of options are exercised.

Call Options

Call options give the buyer the right, to buy the underlying shares at a predetermined price on or before a predetermined date.  The buyer is not obligated to buy the shares.  The seller must deliver the shares if the call option is exercised.

 

Example

 

A particular share has a last sale price of $15.00.  A three month option is available.

 

Buyer:  The buyer has the right to buy 1,000 of that particular share for $15.00 at any time until the shares expire in 3 months time.  The buyer pays a premium of $1.50 per share for this right.  The buyer must exercise the option on or before the expiry date.

 

Seller:  The seller must deliver 1,000 shares of that particular share at $15.00 per share if the buyer exercises the option.  The seller receives the $1.50 premium per share whether the option is exercised or not.

Put Options

Put options give the buyer the right to sell the underlying shares at a predetermined price on or before a predetermined date.  The buyer is not obligated to sell the shares.  The seller (writer) is required to buy the shares if the put option is exercised.

 

Example

 

A particular share has a last sale price of $15.00.  A three month option is available.

 

Buyer:  The buyer has the right to sell 1,000 of that particular share for $15.00 at any time until the shares expire in 3 months time.  The buyer pays a premium of $1.50 per share for this right.  The buyer must exercise the option on or before the expiry date.

 

Seller:  The seller must buy 1,000 shares of that particular share at $15.00 per share if the buyer exercises the option.  The seller receives the $1.50 premium per share whether the option is exercised or not.

 

Why use Options?

 

Risk Minimisation

Put options allow you to hedge against a possible fall in the value of shares you hold.  This is similar to taking out an insurance policy on your car guaranteeing a value for the car.

 

Time to Decide Whether to Buy or Sell

A call option locks in the purchase price, it gives the call option holder until the expiry date to decide whether or not to exercise the option.  The taker of a put option has until the expiry date to decide whether or not to sell the shares.

 

Speculation

If you own shares and decide that the market is going to rise you may decide to purchase call options to get a higher return on your shares.  If you own shares and expect the share price to fall you may decide to buy put options as insurance against this.

 

Leverage

Leverage allows you to potentially get higher returns from a smaller outlay.  Leverage is more risky than investing directly in the underlying shares.  Trading options can allow you to benefit from a change in the price of the share without having to pay the full price of the share.

 

Example

 

If you purchase 1 call option and 1,000 shares.

 

	Option	Stock
Bought on March 1st	$260	$3,000
Sold on May 1st	$420	$3,500
Profit	$160	$500
Return on Investment	61%	17%

 

 

Diversification

Options allow you to use a lower initial outlay than purchasing shares directly, so you can build a diversified portfolio more cheaply.

 

Income Generation

You can earn extra income in addition to dividends by writing call options against shares.  You receive the option premium upfront.  Note that there is a possibility that your shares could be exercised and you will have to deliver your shares at the agreed exercise price.

 

How to Use Options to Your Advantage

 

1. Earn Income:  If you own or are purchasing shares you can write call options against your shares.
2. Protect the Value of Your Shares:  If you are concerned about a short term fall in the value of your shares you can buy put options.  You can also write call options to generate extra income from your shares, offsetting a decline in share price.
3. Profit from Share Price Movements:  You can profit from changes in share price without having to trade the underlying share.  If you expect the market to rise you can buy call options.  If the share price increases the value of your call option increases, you can then sell an equivalent call option to close out any time prior to the expiry date and take your profit instead of purchasing the shares.  If you expect the market to fall you can buy put options.  If the share price decreases the value of your put option increases, you can then sell the put option to close out any time prior to the expiry date and take your profit.
4. Using Options to Give You Time to Decide:  Taking a call option can give you time to decide if you want to buy the shares.  Taking a put option can lock in a selling price for shares that you already own.  In both cases the most you can lose is the premium you paid for the option.

To get a free DVD on options trading:  http://www.21stcenturylifestyletrader.com.au

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Laws of Investing in Shares

 Laws of Investing in Shares 

1.  Never invest more than you are prepared or can afford to lose

2.  Never invest in anything you don’t understand

3.  Never put more than 10% of your money into any single investment.  Diversify by choosing several different investment types e.g. shares, property, business; or industries e.g. health, finance, property.

4.  Don’t jump into an investment out of fear of losing an opportunity.  Use logic.

5.  When investing in shares always have a stop loss (an amount you are prepared to lose e.g. 5%)

6.  Always have an exit strategy.  Work out what the upsides and downsides are.

7.  Always buy when there is weakness in the market and sell when the market is strong.

8.  Do not get greedy.  If the investment is overvalued get out.

9.  Protect your profits with stop losses.  When the share price increases increase your stop loss.

 

Happy investing.

 

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For more investment strategies:  http://www.21stcenturyacademy.com.au