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.