Do you have a mortgage? Have you ever taken a look at just how much you will pay over the course of a 15 or 30 year fixed rate mortage? Even with mortgage rates below 5%, the amount you can expect to pay on a home in 30 years can be an eye opener.
I personally don’t care for any debt, which is why my wife and I have made it a priority to pay off our home early. When it comes to buying a home, most people don’t have the means to use cash to buy a home – so they take out a mortgage. This is the situation that my family is in and we are working hard to pay down this debt.
A little over a year ago, my family decided to refinance our mortage and take advantage of historically low interest rates.
By doing so, we ended up lowering our interest rate to 4.375% on a 30 year fixed mortgage and were able to save over $200 per month in payments. Since then, we have taken that extra monthly savings and used it to lower the principal on our home. This simple step will help us pay our mortgage off early and reduce the overall amount we will spend to own our home.
Just recently, I started highlighting our journey of paying down our home after each monthly payment has been made.
Steps to Pay Our Mortgage Off Early
In order to own our home early, our family must make a few minor sacrifices. Instead of having a couple hundred extra dollars of disposable income each month, we are using the money to help knock down the principal of our mortgage.
At the end of 2010, my wife and I decided to refinance our home and use the monthly savings ($200+) to help pay down our principal. Every month that we pay extra, we are knocking the total cost of owning our home down as well as the number of months it will take to own our home.
Since the time of our refinance, we have made the following additional principal payments on our loan. Here is the breakdown for the past 3 months in 2012.
- March – $205.63
- February – $300.00
- January – $300.00
During 2011, we also paid an additional $2,854.86 in principal on our mortgage. In 14 months, we managed to allocate an extra $3,660.49 towards the principal – which averages out to $261.46 per month.
As I mentioned earlier, one of the ways we are able to afford to pay extra principal each month is from refinancing our home. We were able to take advantage of historically low interest rates over a year ago. Instead of paying off our home with a 30 year fixed rate loan 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.
March 2012 Update
Each month I will provide specific details on our progress for paying off our home 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 – $208,033.29
- Change from February – $523.48
We knocked off another $500+ in mortgage loan principle this month by continuing to pay extra on our monthly payment ($205.63). The other portion of the decrease can be attributed to the monthly mortgage principal payment.
Mortgage Term
- Contractual Remaining Term – 28 years, 10 months
- Actual Remaining Term – 27 years, 10 months
Over a year has gone by since we refinanced our mortgage, so our contractual remaining term is 28 years, 10 months. However, by paying extra principal each month, we are set to pay off our home in 27 years, 10 months. The extra $205 in principal we paid this month wasn’t quite enough to knock an additional month off our loan compared to February. We are still on pace to own our home one year sooner than our contractual remaining term.
Target Payoff Date
- New Payoff Date – December, 2039
- Change from February – No Change
We are still on pace to pay off our home in December, 2039 – which is the same as it was last month. This target assumes that we will not pay any extra on our principal, which shouldn’t be the case. As long as we continue to contribute extra to our mortgage principal, I fully expect the target payoff date to get closer and closer.
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 – Jan (2012)
- How We Plan to Pay Our Mortgage Off Early – Feb (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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Way to go John.
I am paying off my mortgage early too. I have been in the house for 16 years and will have it paid off in another 5-6 years. For me, it was the time that was more important than the money. I didn’t want to be paying on a mortgage until I turned 61 and I decided to get it paid off in my early 50s instead.
There are a lot of people who are either for or against paying off mortages early. But, it’s not just a question of math for me. It’s more of a lifestyle choice. After my mortgage is paid off, I hope to be able to semi-retire.