Extra Mortgage Payments and Saving Transfers
This year we’re moving along with our goals, last month we saw an small increase in our net worth and we’re looking to build on that momentum this month and the rest of the year.
Spiderman learned that with great power comes great responsibility. For us with an increase in our income, comes increase in payments. Since my husband received a raise this year, we’re taking advantage of it and putting it to good use. Most of the money from the raise will be redirected towards that goal with a monthly transfer to build up our emergency fund.
In addition our little month bump allows us to adjust out extra mortgage payments.
Current Mortgage Balance:
As you saw with my last net worth update, here’s where we stand with the mortgage right now:
- Total Loan Amount: $112,007.21
- Interest Rate: 5.00%
- Loan Term: 30 years, fixed rate
Right now we’re currently sending in an extra $150/month. If we continued with that plan, we’d then be paying off the loan in 18 years and 2 months. Besides shaving off about 12 years from our mortgage, we’d also save about $60,000 in interest payments.
Motivated by the good news, I’ve adjusted ever so slightly our extra mortgage principal payment that goes out on the 15th of the month. Instead of $150/month, it’s going to be $175/month being sent in on the 15th. It doesn’t seem like much, but it will save us some more time (another year) and money ( about $3,000).
Early Mortgage Pay Off Stories
We’ve excited about finishing our mortgage for our own reasons, but I also receive inspiration and encouragement from thise who’ve already finished their mortgage goals and those who are in the middle of the process.
How were they able to accomplish this with ‘regular’ income? I’ve noticed being focus and following a plan has been key to their success. Here’s are some of my favorite quotes from some personal finance bloggers I follow.
Nickel over at Five Cent Nickel was able to pay his mortgage off in less than 8 years! I love how he and his wife were able to do it while raising their family together. They were making extra payments and aggressively knocking down their mortgage balance. They eventually moved and got another mortgage, but I was amazed at their down payment.
In 2006, we ended up moving to another state. We made a tidy profit on our first house when we sold and… Though we ended up moving to a larger, more expensive home, we were able to put down 50% this time around.
…As before, we continued making extra principal payments every month, so the balance was spiraling downward. About 18 months later, rates dropped dramatically and we decided to refinance once again. This time, however, we went with a 15 year fixed rate mortgage at a bit under 5%.
In the mid-90’s, we moved to the southern part of the U.S. Here’s how we paid off our mortgage in 1997 and haven’t had one since:
- We spent less than we earned starting as soon as we got married in the early 1990’s. We saved quite a bit, combined it with some previous savings and the equity from the sale of our Northeast home, and were able to come up with a down payment of about 35% of our new home’s value.
- We bought a house we could afford. Instead of stretching to buy the biggest house possible, we decided what we needed in a house and purchased a place that met those criteria. In the end, we only borrowed about 60% of what the bank said they’d let us borrow.
- We applied everything we could to retire the mortgage: extra payments (from still spending less than we earned), pay raises, bonuses, income from a side business, my wife’s income, and gifts. If money came in, it usually went to paying down the mortgage. However, we did not sacrifice what we considered to be better investments, such as fully funding my 401k.
As you can see, FMF and his wife are debt adverse and that fueled them to pay it off as soon as they could.
Right now, we have some other financial goals we need to reach before we go all out on the mortgage. Once we get our short term savings goals in time for the baby, we’ll turn our attention to the student loan.
Mortgage Payment Spreadsheets
If you’re looking for some free spreadsheets to help you figure out your savings and payments plan, here are a few that I’ve found:
Please share your spreadsheet template with me and I’ll try to include a link here.
Thoughts on Extra Mortgage Payments
How many of you are sending in extra mortgage payments? How do you arrange it- do you add it on to your regular mortgage bill or do you send it in separate? For those who’ve done the calculations, how much money and time will you save on your plan?
Photo Credit: Horia Varlan