How to shave years off your mortgage

It’s not exactly magic, but it is magical: Making extra principal payments on your mortgage will cut down on the number of payments you have AND save money on interest.

IMPORTANT: Before making extra payments, be sure your mortgage agreement doesn’t include penalties for pre-payment. Luckily, ours has a no-prepayment penalty clause. Rock on.

When we bought our house in June, I knew this was an option. But it wasn’t until I stumbled upon the Death to the Mortgage blog that I really began to take the idea seriously. “The Executioner” (witty!) anonymously details how he and his wife are making mortgage repayment a priority — aiming to pay it off in FIVE YEARS. Their mortgage amount isn’t as much as ours, but it’s really inspiring.

We’re still paying off our credit card debt, so we’re starting small, adding an extra $25 per month toward our principal payment. If we can throw that much every month, the mortgage will be paid off 13 months earlier than planned (we’re on the 30-year plan as it is, *sigh*). An alternate plan, if our finances allow, is to put an extra $1000 each year toward the principal, which alone reduces the time period by 3 years and 2 months. Nevermind all of the interest payments we’ll save. Monthly payments of $25 and a yearly payment of $1,000 combined shaves off a whopping 5 years, 1 month. And forget about tossing $300 at it per month — that’s a 9-year reduction in payments.

Seems like a no-brainer, right? Obviously, we’ll have to be prepared for when life gets in the way, such as unexpected expenses. I can’t think of one good reason NOT to try to pay off the mortgage earlier.

4 comments to How to shave years off your mortgage

  • RainyDaySaver

    @Petunia: Thanks for stopping by — best of luck with your goals, too, but it sounds like you've got a great handle on things!

    I definitely advise folks to pay off CC debt first. That's what we're doing (and almost done, thank goodness), so that's what we've only been adding $25 a month to the principal, to 'round off' the payment to an even number.

  • Petunia

    I also have a 30 year fixed. I round my PITI up just a bit and write my check for a nice even number. I increase that round number just a bit once a year. I also use my credit card rewards to chip away at my principal balance. I don't carry any credit card debt. I agree with others that the best place for your extra money is your credit card debt, not your mortgage. Once consumer debt is gone, then paying down your mortgage makes sense.

    I am not a fan of setting up a bi-weekly plan with your lender. Typically, a fee is charged. I think most people don't realize that the first half of the payment just kinda sits there until you pay the second half. You can come out ahead by opening an on-line savings account and doing your own bi-weekly plan. There is no fee to pay and you earn interest on the half payment just sitting there, which you can then also throw at your mortgage. The savings on these plans comes from the extra payment you make each year, not from paying half of the payment 2 weeks early.

    Really like your blog, best of luck to you with your financial goals!

  • […] also puts a crimp in my pay extra on the mortgage plan that I’ve been following the past year. Since Day 1, I’ve made an extra principal […]