Mortgage savings accounts are another way that a homeowner can strategize to pay off a mortgage. The intent is for the homeowner to use this type of account to quickly pay down the principle of an existing mortgage. This type of savings account is basically a savings account in which the money you save offsets the interest charged on your home loan. You can use it to help you get out of your mortgage much sooner.
Let’s face it. The average mortgage is for thirty years. Wouldn’t you want to research alternative ways to help you pay off your mortgage sooner? Mortgage saving accounts allow you to pay down mortgage debt and put your money into other things instead.
What is a Mortgage Savings Account?
A mortgage savings account is a dedicated savings account that is designed to offset the amount of interest you pay on your mortgage.
The banks link your mortgage account and your specialized savings account so that any interest that might be due on your mortgage is reduced by the amount of interest that you would have accrued on your mortgage savings.
Here’s a simplified example of how this works:
Assume you owe $100,000 on your mortgage. Your interest amount for each month is calculated on your current balance.
If you have $3,000 in your mortgage savings account, then your interest is calculated as though your balance was $97,000.
This reduces the amount of interest you pay, which can significantly reduce your principal balance much faster.
Exactly How Does It Work?
Most mortgages have repayments that are calculated on an amortization schedule. This means a portion of each payment you make pays the interest and the remaining portion goes towards your principal balance.
If you have savings kept in your mortgage savings account, then even though your repayment amount doesn’t change, you are changing the portions of interest and principal balance you make with each payment.
This can mean you pay less interest and more off your balance with each payment.
The rationale is that you don’t write checks against the mortgage payment amount. You should let this amount remain in your account at all times. However, the thought process is that any leftover money will be applied directly toward your mortgage. As a result, your mortgage will be paid off sooner. Do mortgage saving accounts sound promising?
Think about it. If that extra money was in your own checking account, you would probably spend it on something that you don’t really need. This way, the money will already be in the mortgage account. This strategy may actually work for anyone that is disciplined. You must be disciplined in order to operate mortgage savings accounts so they have a positive effect. This strategy might seem a little comical for some, but it may be the little nudge that others need in order to make them save their money and put it on the mortgage. Different things work for different people.
Do you think that this strategy will work for you? Are you looking for other ways to refinance and pay down your mortgage? Check into the features of mortgage saving accounts.