Increasing Extra Mortgage Payments

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by Elle Martinez · 40 comments

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%.

Over at Free Money Finance, FMF gave his step by step process on how his family tackled their debt.

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

About Elle Martinez
Elle Martinez helps families at Couple Money achieve financial freedom by sharing tips for reducing debt, increase income, and building net worth. Learn how to live on one income and have fun with the second..

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  • http://www.tmgbooks.blogspot.com tmgbooks

    Very cool post! I like to read stories like this. I personally think that, for most people, the goal of owning your home debt free should be their primary financial goal. It makes retirement much more affordable of you do not drag that debt with you into your golden years.

    Something like 35% of those who have a home are mortgage-free. So, it is obviously very possible to accomplish that goal.

    The key to becoming mortgage-free, in my experience, is to not finance your purchase for more than twenty-years. The first ten years on a thirty year mortgage are simply too expensive and a real obstacle to building your net worth.

    • Elle

      Thanks for sharing the mortgage length tip!

  • http://firstgenamerican.com First Gen American

    Things we did:

    -Always pay a little extra every month, even if it’s just rounding up to $100.
    -Put all windfalls towards mortgage (tax returns, health spending reimbursements, bonus’s, side income, proceeds from selling stuff, etc)
    -Buy a house based on 1 income.

    Generally I felt if my checking account balance was growing too big, then I needed to throw some extra at the mortgage before I figured out a more interesting use for the money.

    • Elle

      I completely agree with getting a mortgage based on 1 income. We wanted a buffer in our monthly budget so we can accomplish other financial goals.

  • http://www.outliermodel.wordpress.com CF

    Awesome job! Its always encouraging to see others making progress on their financial goals.

    We put an extra $100 and some change onto our mortgage payment each month. We also made a lump sum payment last year equal to one extra payment. Hoping to do the same or better this year! We could probably be putting more money onto the mortgage but we are focusing on paying off the bf’s student loans and paying for my classes in cash first.

    I’m not sure how much time or interest we’re saving but it sure is nice to watch the principle go down! We’ve only had our mortgage for one year so far.

    • Elle

      Great job on paying down your mortgage!

  • http://www.krantcents.com krantcents

    I pay additional principle on my mortgage. I use online banking and set up a monthly payment to make it automatic. My savings is a payroll deduction to make it automatic too. It works for me.

    • Elle

      We too use online bill pay with our bank to pay extra on our mortgage. Love how you automated your savings too!

  • PawPrint

    I pay $250 extra each month (automatic payment) and any bonuses go directly to principal payment.

    • Elle

      Congrats on regularly knocking down the mortgage by $250!

  • http://www.rentingoutrooms.com Mike

    This an awesome post! I love hearing stories of people paying back their mortgage super early. This is exactly what I’m doing with the extra income from renting out my rooms. I’m in an unfortunate situation where I have two mortgages. The second mortgage bears a 8.375% interest rate. Back in May 2009, my second mortgage had a balance around $35,500 and right now it stands around $10,300, which is slated to paid off by the end of 2011. This will just leave me with a $135k mortgage which I hope to refinance to a 15 year mortgage and start aggressively paying this back.

    That’s my plan and I hope it works out.

    • Elle

      Best wishes on your plan Mike! I hope renting out continues to help you reach your goals.

  • http://DoNotWait.com DoNotWait

    We are too trying to pay the mortgage in about 15 years instead of the 25 we have. We are glad that the plan seems to really work out well because we are still quite young and it means the house will be paid before we get 40.

    • Elle

      Paying off your mortgage 10 years early is great; having no mortgage by the time you’re 40 is fantastic :)

  • http://www.moneyistheroot.com MoneyIsTheRoot

    I have thought a lot about paying extra towards my mortgage, and I am conflicted on this subject. In one regard, you can save a lot in interest, and you can be debt free sooner than later…normally I would say this is reason alone. However, what about the opportunity cost of what that money could do for you in other ways. What if you invested it, earned interest above and beyond that of your mortgage, then paying extra on the mortgage would actually be a loss to you. I think with the market turning around, the extra mortgage payments are not as beneficial. That being said, if you can afford to get into a 15 year mortgage, I would still highly recommend that.

    • Elle

      Nice points! We don’t feel like you should pay down your mortgage at the expense of your retirement. We think you can do both. Getting a home that is based on one income can give you some leeway. I think when your mortgage is 30%or more of your income then you’re pushed to make an either/or choice.

  • neil

    If you have built up you emergency savings, does it still make fiscal sense to direct extra money towards the additional principal to pay down the mortgage sooner or, to invest that money in good funds where the ROI is much greater.
    Mortgage interest is still deductible so at a 5% mortgage you are actually paying about 4% interest. In the market your money can earn upto 8-10% on average over a similar term.
    thoughts?

    • Elle

      Neil – Good question. We feel like we don’t have to have an either/or decision with paying down our mortgage. We invest in our retirement fund automatically to work towards out retirement goals. We wanted to get a 15 year mortgage, but with the flexibility of a 30 year if times got tight. This method allows us to accomplish both our goals.

      • Neil

        Elle,
        I am in the same boat as you as our thoughts were identical.
        We had a 20 mortgage and decided to refinance it to get a lower rate. With the lower rate and the recession, I wanted to have the flexibility of lower payments with a 30 yr mortgage but still paying it off like a 15yr unless there was a squeeze. So we have been doing that and funding our retirement.
        After reading some articles, the thought crossed my mind; Should I back down on the additional principal, invest 50% of that in the market and stretch the loan back to about 20 yrs. I think I will go this route, but need to convince myself 100%

  • http://www.yesiamcheap.com Sandy

    I don’t own the house I live in outright, but I own my investment property and I bought the smallest one I could afford. I can share what I did with my car and what I am doing with my student loans. Every extra $20 gets sent right out. It’s small but it adds up. With that strategy I paid my car off 5 months early and all it cost was an extra $20 at a time.

  • http://moneysanity.com Alan

    Nice post!

    The key to paying off you mortgage early is to finance the smallest amount of money possible. One way to do that is to postpone the purchase of a house for as long as possible, that way they can get the nicest house possible, without breaking the bank. Another way is to buy a 2 family house. That way you will have extra income coming in. Eventually, once the 2 family is paid off it can be a great income producer.

    • Elle

      Thanks Alan; I think you address an issue that some people gloss over – how much house to buy. I think that if you’re conservative with what you buy, you can give yourself more options down the road.

  • http://brokeprofessionals.com brokeprofessionals.com

    Hi. Thanks for this post, my wife and I are set to close on our first home at the end of the month so this was very timely information for me.

    • Elle

      Glad you enjoyed the post- best wishes on the new house!

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  • http://www.deathtothemortgage.blogspot.com/ Executioner

    My wife and I hope to pay off our mortgage in the very near future. We originally took out a 15-year loan, then after a year and a half we decided to aggressively attack it. We reorganized our financial lives to funnel as much extra money toward the balance as possible. After a year of our project, we refinanced to a 10-year loan. Two years later, we are on the verge of paying it off. If we can get rid of the mortgage this year, we will have had it for 5 years. We’re very much looking forward to eliminating that recurring expense and using the free cash flow to build up some income-generating assets.

    As to the commenter above who suggested that alternate investments to a mortgage may yield 8-10%, keep in mind that those widely-published rates are based on very long-term averages, going back the length of a human life or longer. I submit that for someone holding a mortgage, the length of the loan greatly influences your ability to meet or exceed the mortgage rate through alternate investments. For thirty-year loans, this may be possible. For shorter terms (15, 10, etc), the risk of underperforming the mortgage rate is considerably higher. Consider recent history…would you rather have dropped $100K into the stock market 10 or 15 years ago, or paid off a mortgage?

    Keep in mind also that by holding a mortgage, you are agreeing to a monthly obligation for the length of the term…a modern form of indentured servitude. If your income streams get interrupted during that time, the consequences could include selling other assets at undesirable moments, or losing the home itself.

    I wish you success in your mortgage payoff plan. My own recommendation would be to avoid locking yourself into a regular number (like 150 or 175) and instead send variable amounts from month to month based on your financial situation at the time — the higher the better. Good luck!

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  • http://www.smallbizbigdreams.com Chris Parsons

    I am against paying off the mortgage early. I know it sounds like a good idea because of the interest that you are saving, but you are missing all the interest you could be making from investments when you take that route.

    Here’s an article discussing in further detail

    • Elle

      We don’t think it’s an either/or choice – just like you pick out your investment portfolio’s asset allocation, we’re looking at the big picture.

      We also invest for our retirement – we believe it’s a the best strategy that allows us to have some relatively guarantee returns while putting money aside with a possibility of higher returns.

      It goes back to how much someone plans buying their home. Buying too much home for your income can hinder your choices. We bought our place based on one income and that allows us a monthly buffer for other financial goals.

      If one of us loses our jobs, we have savings to help us and we have investments to cover if things get extremely rough.

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  • Mrs. Frugalista

    In January of this year, we began making payments on our refi ($243,500./3.75%/15 year mortgage). Seven months later, our mortgage balance is a little over $225K. My goal is to have this monkey off our backs by January of 2018. Is it hard? Absolutely. How do we do it? We live below our means. Will we make it? I’m not sure, but we will do everything in our power to get as close to it by the set date. The reward? It’s peace of mind!

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