Money Matters – Step 7: Pay Off Your Home Mortgage

This is a HUGE step for the vast majority of people, not only because having a mortgage is viewed as ‘normal’, but also because a home mortgage is the single largest debt any person or family will likely have.

Pay Off the Mortgage Early or Enjoy Life? - Peloton Capital Management

A ‘normal’ mortgage takes 30 years to pay off, mostly because the payment is calculated with the total amount of interest (for the full term) included at the beginning. If this sounds like a catch-22 situation, that’s because it is! If mortgages were calculated on a yearly basis, then the total length of the loan would be greatly reduced.

For example, a $300,000 mortgage at 4.0% interest for 30 years will cost a total of $215,607.15 in interest, making the overall cost of your house a whopping $515,607.15 (and that doesn’t include points, fees, taxes, insurance or any other expense that comes with a mortgage loan.)

Your monthly payment of $1,432.25 will apply $1,000 towards interest and $432.25 towards paying down the principle. As you make future payments, a little more goes towards the principle while a little less goes towards the interest. You’d think that the amount of interest paid VS. principle paid would cross an equal point 1/2 way through the life of the loan, and you’d be wrong. In reality, that crossing point is 7/10ths of the way through the life of the loan. This means that ANY EXTRA PAYMENTS you can make in the beginning of the life of your mortgage will save you a tremendous amount of money in the end.

Almost every bank web site has a “Calculators” section. Use these tools to find ways to save long term money, like this:

  • Add an extra $100 each month for the principle and you will save $27,086.49 in interest and shave 3 years and 4 months off a 30 year loan.
  • An extra $200 each month will save $47,611.20 in interest and 6 months time.
  • Refinance your 30 year mortgage for a better rate and only 15 years.
  • Instead of making monthly payments, switch to bi-weekly payments.
  • Downsize your home, especially if you bought more home than your really need or if you no longer need a large home (like when your children grow up and move out).
  • If you have at least a 20% equity in your home, ask your mortgage company to drop the PMI (private mortgage insurance). This will save you $1,250 to $2,500 a year, which is money better spent at paying off your mortgage!
  • Utilize the Debt Snowball method to pay off the loan quickly!

Debt free, mortgage free, and still heading in the right financial direction! Next up – Step 8: What To Do With All This Money


About hemibill

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3 Responses to Money Matters – Step 7: Pay Off Your Home Mortgage

  1. Pingback: Money Matters – Step 4: Fill Up Your Emergency Fund | Hemibill's Blog

  2. Pingback: Money Matters – Delusions of Grandeur? | Hemibill's Blog

  3. Pingback: Money Matters – Step 6: College Funding | Hemibill's Blog

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