You Can Pay Off Your Mortgage Early

The Old Man

Shortening the life of your debt will save you money

The cost of housing, either renting or buying, is continually rising. Outside of the occasional burst bubble, housing costs increase over time. When I was attending college in the seventies, you could rent a two-bedroom apartment for $160 a month. Now in the same town, a two-bedroom goes for around $1,350.

Once you buy a home you are not stuck for the next 30 years making the minimum payment. Yes, a mortgage sets you up to make the minimum payment.

Would you make the minimum payment on a credit card for 30 years? Never! You can save big bucks by attacking your mortgage early and often.

1. Become an Active Warrior

Always looking for ways to weaken the enemy — your death-grip mortgage and the bank that controls your future until the moment you pay them off.

For example, let’s say you are in the first year of your new mortgage, and you get a Christmas bonus of $1,000. You might buy a nice piece of jewelry for your wife, the latest iPhone, or blow it on a fun weekend. Or you could add the $1,000 to your next payment. If you add the $1,000 to your next payment (on your 4 percent loan with 348 payments remaining), good things will happen. Remember every additional payment shortens the life of your mortgage — in this case by two payments.

You will save $2,183.79 in interest payments over the life of your loan.

Why? If you choose to buy the iPhone, that $1,000 remains part of the principal (the amount you owe) and you will pay 4 percent interest compounded monthly on that $1,000 for the next 348 months.
$1,000 Lump Sum Additional PaymentAuthor

Imagine a $12,000 inheritance left by good old Aunt June. Should you make a down payment on a new car that will lose a third of its value when you drive it off the lot or apply it to your mortgage? The $12,000 additional payment on the mortgage saves $26,205.43 over the life of the loan. Meaning that you will pay off your loan 30 months sooner.
$12,000 Lump SumAuthor

The earlier you attack your mortgage, the better. The same $12,000 applied halfway through your loan only saves you $9,843.62 compared to $26,205.43 with 29 years remaining. Timing is everything, now is better than later.
Mid Loan Lump Sum ExampleAuthor

Spreadsheet formulas for three examples above
Formulas for 1st three examples,Author

2. Become a Persistent Warrior

Increase your payment and stick with it. We did this each time my wife and I got a raise. Say you have a new 30-year loan at 4% for $250,000. The amortized payment is $1,193.54. Amortization means the regular payments required to pay off a debt with interest over the term. If you make the regular (minimum) payments, you will pay $179,673.18 in interest plus the $250,000 principle. If you are determined to bite the bullet and make a regular monthly payment of $1,500 a month, you will save $103,081.78 in interest.
Recurring Increase in Payment Example,Author

3. Game the system

Split your mortgage payment split in half and make an electronic payment every two weeks. You will hardly notice the difference, but instead of making 12 payments a year, you will be making 13. If instituted at the beginning of the loan, this simple step will save you $33,454.65 over the course of the loan.
Approximation of 1/2 Payment Made Every Two Weeks (same formula as #2),Author

Spreadsheet formulas for the last two examples
Approximation of 1/2 Payment Made Every Two Weeks (same formula as #2),Author

Engage the Enemy

Pick a plan that works best for you or combine all three. Make it a family priority to savagely attack your death-grip mortgage and see how much you can save. Make a game out of how quickly you can pay it off. Banks get rich off home mortgages. There’s no reason you can’t claw back a little of that hard-earned money.

Banks want one thing — your money! Don’t play their game. They want you to make that minimum payment so you can pay them every last cent of interest. Attack your mortgage early and often. Every dollar remaining in the principal balance costs you $2.31 at the beginning of a 4% loan — so rethink that $8 frappucino.

Banks are wildly corrupt — look at what Wells Fargo recently tried to pull. They opened hundreds of thousands of fraudulent accounts for which they were fined $185 million by bank regulators. Wells Fargo now faces civil and criminal suits reaching an estimated $2.7 billion. Criminal suits for what once was a venerable banking institution!

This might be a good time to look for alternatives to big banks. Credit unions, money market mutual funds, and cash management accounts could be better options. Most of these outlets offer better interest rates than traditional banks, and more importantly, it means you’ll stop enriching some of the most corrupt institutions on the planet.

And if that isn’t the best reason to destroy your debt as soon as possible, I don’t know what is.

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Looking for solutions to improve our world. I write about politics, education, climate change, and any issues important to average Americans struggling to survive in a world gone mad.

Chico, CA

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