Probably the longest commitment we ever make in our lifetimes is the 30 years we commit to a mortgage. There isn't too much we can count on having after 30 years, but unless we sell our houses or hit the lottery, we can be sure we will be paying off our mortgages for a long time!
Imagine how nice it would be to be mortgage free! It would, in many cases be like getting a $1,800 a month raise. It doesn't seem possible anyone would have any kind of financial difficulty if he didn't have a mortgage hanging around his neck. You could buy just about anything and go just about anywhere without needing to prepare your budget around that monthly mortgage payment.
In this article, we will explain how to pay off your mortgage in double, triple and even faster time! Oh, it won't necessarily be easy, but it can be done. It has been said a person can do anything with motivation and a plan. So, here's the plan.
Check your interest rate
If you are paying over the market rate on interest it may behoove you to refinance to the lowest rate you can get. Here's why:
A $250,000 mortgage at 8% for 30 years comes with a monthly payment due of $1,834.41. Looking at an amortization schedule for this mortgage we find on the first payment, the principal being paid is $167.74.
A $250,000 mortgage at 6% for 30 years comes with a monthly payment of $1.498.88. Its amortization schedule shows the first payment's principal portion is $248.88. Why is this important? Because you want to pay off as much principal as possible while paying as little interest as possible.
The early months are the most important ones
With the 8% mortgage, as we have noted the first monthly principal payment is $167.74. The principal portion of the payment increases slightly with each payment. So, for payment number 6, the principal paid is $173.41. If we add the principal payments for payments 2 through 6 together we get $855.64, and if we add this amount to our first payment, we will have paid the first 6 payments of our mortgage.
If we keep adding $850 to $1,000 to our payment every month for the next 6 months, we would have paid off the first 6 years already!
As you can see, the early months are important in getting a good start to paying off a mortgage early. This is because in these months, the interest, which is time value, is expensive. So, by not using that time we save a lot of money.
Double time and then some
Now let's see what would happen if we doubled the payment every month. The payment due monthly is $1,843.41. If we paid $3,646.81 monthly, we would be paid in full in 7 years and 7 months. Now that's quick!
Here's why it's important to get as low an interest rate as you can. If you had a 6% interest rate on the same amount for 30 years, the monthly payment would be $1,498.88. With this loan, if we paid a total of $3,646.81 monthly, we would be paid in full in exactly 7 years. So, we would save an extra 7 times $1,498.88 or $10,492.16.
Who's got that kind of money?
Of course, coming up with an extra $2,000 a month is a bit much, but this is the kind of money it takes to pay off a mortgage in a lightning quick mode. So, to get a more realistic goal, here's what to do.
Look at the mortgage's amortization table and scan down to the halfway point. This would be payment number 180 on a 30-year mortgage. Take note of the principal portion of this payment. On the 6% mortgage we have been talking about, it is $607.73. If you pay this amount in addition to each of your monthly payments, you will have paid off the mortgage in full in exactly 15 years.
Again, sometimes coming up with additional payments is difficult, but this method gives you an idea of how making relatively small additional payments can help you pay off your mortgage way ahead of schedule.
