I mentioned earlier some ideas for tax refunds that we’ve used to improve our finances. What’s our plan for our tax refund this year? We just have two goals this year: pay down the mortgage and paying cash for some small house projects.
Paying Down the Mortgage
Our main goal this year with the refund is to go ahead, take the first time home buyer’s tax credit, and put it towards paying down our mortgage. We want to put the $8,000 tax credit and take some years off our mortgage. In addition to using the tax refund, we’re also automating an additional $150/month towards our mortgage principle.
Why Pay the Mortgage Down?
By paying our mortgage earlier than the 30 years scheduled, we’re going to save tens of thousands of dollars in interest. Following the mortgage amoritization schedule, most of the money go towards paying interest in the beginning of your loan. As the mortgages draw to a close, the payments increasingly towards the principle owed.
Notice how little of our first year’s payments are going towards principle.
It’s also more about peace of mind. We’re hoping to eventually improve our monthly cash flow by eliminating our mortgage earlier than scheduled.
How to Accelerate Mortgage Payoff
It’s not too difficult to pay extra on your mortgage, just check with your lender to see what’s the best method.
The easiest way is to add the additional money to your regular mortgage payments. Make sure you indicate that the extra money to go towards principle; otherwise your lender could consider it as an early payment for the next month or so, and won’t apply it to your principal balance.
Your Thoughts on Your Tax Returns
How about you? If you’re getting a tax return, how are you using it?