Mortgage Independence Day – Pay off Your Mortgage Sooner and Enjoy More Freedom

Written by: Scott Sery

With July 4th just around the corner, it’s a great time to consider your personal Mortgage Independence Day.  Imagine what it would be like if you didn’t have to make a mortgage payment every month.  Although most folks can’t write a check to pay off their mortgage, they can make some changes to repay their mortgage in fewer than 30 years.

If you took a poll of 100 people, and asked if they liked being in debt, you would most likely get 100 answers of resounding “No.”  Even when the debt is being used in a responsible manner, such as buying a house, or student loans, just about everyone wants to be out from under that debt as soon as possible.  Most people will get rid of their smallest debt first, and as soon as they can they will tackle the mortgage.  Working to pay off the mortgage takes some planning, but it really is not that hard.

Most mortgages are 30-year fixed rate mortgages.  This means that if only the minimums, as set out in the original amortization schedule, are paid, the loan will last for 30 years.  That is a long time, nearly the entire working career for most people.  For someone with a $250,000 loan, at 4% interest, if all they make is minimum payments, they will end up spending almost $430,000.  $180,000 of that is on interest alone.

There are ways to lessen the impact, and essentially get the house for cheaper.  Consider putting $50 extra per month toward principal on the house.  Just about anyone can come up with an extra $50 per month.  Doing so will shave 26 months off the length of their loan, and save over $15,000 in interest charges.

In the long run 26 months is not a whole lot of time, but $15,000 is a significant amount of money.  Want to save even more?  Consider increasing your additional principal payments to $250 per month.  Doing so will take your 30 year term down to just 21 years 7 months.  The total cost of the house will drop from around $430,000 to $373,500.  That is a savings of over $56,000 over the next 21.5 years.

Now consider this.  $250 out of pocket each month is $3,000 per year.  $56,000 spread out over 21.5 years comes to roughly $2,600 per year.  The true cost of paying an extra $3,000 per year toward the loan is actually only $400 per year.  Do not be confused; however, even though the savings are real, the homeowner will not see the extra money until the loan is paid off.

Paying down the debt is great, but what if bills are already sapping almost all the money during the month?  There are 3 ways to find money to pay down the mortgage faster.  Frugality, or simply spending less, requires the least amount of work, but the most amount of dedication.  Refinancing to a lower interest rate requires a specific situations, but once it is done can lead to a few hundred extra per month.  Earning more on the side is a great way to increase one’s standard of living.  Only a few hours per month would be required to turn an existing skill into $250 per month.

Financial independence means different things to different people.  But it is safe to say that most people would like to be independent from owing money to anyone.  Take some time to figure out how much extra per month you can put toward your mortgage, and then use the PrimeRates mortgage calculator to see how much money you will save over the years.


Mortgage Independence Day – Pay off Your...

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