I don’t like debt of any kind. I know there is the debate between good and bad debt, but I simply don’t like owing money to anyone else. This includes items like car loans, credit cards, and even our home. Since my wife and I decided to raise our family by owning a home (instead of renting) – we have incurred some debt – over $200K!
Since I don’t like debt and we owe a bunch on our home, one of my family’s most important financial goals is to pay it off as soon as possible. Even though we are paying low interest (4.375%) on a 30 year fixed rate mortgage, the thought of paying hundreds of thousands of dollars extra in interest on that loan is disturbing. In order to reduce the amount we will pay to own our home, we have decided to pay our mortgage off early.
Steps to Pay Our Mortgage Off Early
Paying off our home early requires sacrifice. It requires that we commit extra funds each month from our budget to be allocated to the principal of our loan. In addition, in order to maximize our pay off plan, we refinanced our home a year ago to lower our required monthly mortgage payment.
Since the time of our refinance, we have made the following additional mortgage principal payments on our loan. Here is the breakdown for the past 12 months.
- January – $300.00
- December – $325.00
- November – $300.00
- October – $252.20
- September – $252.20
- August – $252.20
- July – $252.20
- June – $303.49
- May – $252.20
- April – $221.79
- March – $221.79
- February – $221.79
Over the past 12 months, we have paid $3,154.86 in extra principal. These payments are in addition to our standard monthly payment of $1,078.21. That averages out to $262.91 extra per month.
One of the ways we are able to afford to pay an extra $259.53 per month is from refinancing our home almost one year ago. We were able to take advantage of historically low interest rates. Instead of paying off our home with a 30 year fixed rate mortgage at 5.625%, we refinanced to another 30 year fixed rate loan at 4.375%. The end result is a savings of $221.79 per month, which goes directly to paying off the principal on our loan. Then as our budget allows, we add $20, $50, or even $100 more dollars each month to accelerate our payoff.
Paying extra principal each month is a crucial part in working towards paying off our home early.
January 2012 Update
Each month I will provide specific details on our progress for paying off our mortgage early. This data not only proves to my readers the power of paying down the principal of a loan early, it gives my family motivation to stick with our plan. Here are the latest details of paying off our mortgage early.
Mortgage Loan Principal
- Remaining Principal – $209,172.41
- Change from November – ($613.44)
We knocked off another $600+ in mortgage loan principle this month by continuing to pay extra on our mortgage ($300). The other portion of the decrease can be attributed to the monthly mortgage principal payment.
Mortgage Term
- Contractual Remaining Term – 29 years, 0 month
- Actual Remaining Term – 28 years, 0 months
A year has gone by since we refinanced our mortgage, so our contractual remaining term is 29 years. However, by paying extra principal each month, we are set to pay off our home in 28 years (instead of 29). Last month, we were at 28 years, 3 months – so you can see the positive effects of paying extra on your monthly payment!
Target Payoff Date
- New Payoff Date – January, 2040
- Change from December – Knocked 2 months of the Loan
In December, we were on track to pay off our home in March, 2040. By paying an extra $300 this month in principal, we knocked another 2 months off the term. We are on pace to own our home in January, 2040. This number will continue to decline each month we decide to pay extra on our payment.
Each month I continue to analyze this data, I am more encouraged and motivated to pay down our mortgage – one month at a time. As you can see from the numbers above, there are huge benefits to paying down your mortgage early.
Do you make extra payments on your monthly mortgage? Have you seen the positive effects?
Related posts:
- How We Plan to Pay Our Mortgage Off Early – Feb (2012)
- How We Plan to Pay Our Mortgage Off Early – Mar (2012)
- How We Plan to Pay Our Mortgage Off Early – Nov (2011)
- How We Plan to Pay Our Mortgage Off Early – Dec (2011)
- How to Calculate Your Monthly Mortgage Principal and Interest Payments
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