Paying extra towards your loans now, goes a long way later!
That's the 100% truth my friends! The more you pay off now, the less you pay in interest later - It's like kickin' compound interest in its head and getting away with it. I'm certainly not the first to promote this concept, but it was about time I go on record and state it once and for all :)As I've mentioned in previous net worth updates, we'd been talking about using the money leftover from our House Budget every month, and then applying it towards our 1st Mortgage principal. That way we could start knocking it away sooner than later, and it wouldn't require any big change in our financial scheduling!
Plus we really wanted to get into the habit of paying extra every month while we're in our "interest-only" payment period. In approx. 8 years we'll be forced to pay more anyways, so why not get to it and start erasing some of that "good debt" as they say (which, in all honesty, isn't all that "good" feeling right now - but we've already covered that one)
And what do ya know? I *finally* got off my a$ and started working on this. Yup, "Operation Pay Off Mortgage" is in full effect and it's feeling great. We can even see the difference it's making already! The one principal payment of $165 this month already lowered our future monthly payments by almost $1 :) So what, it's only a dollar right? Yes, but it's a dollar that you don't have to pay EVERY SINGLE MONTH for the rest of your loan! Which, in our case, has 28 years left on it. That means a savings of $336 (336 months) w/out including the 6.875% interest that would have compounded on top of it.
The point is - A one time payment of $XXX dollars shaves off money for the REMAINDER of your loan. So even if you went back to paying just the minimums, your initial savings are now already in effect :) Of course, we're not stopping now. Nope, we're gonna keep applying that extra money every month until we get that bastard down to zero. It's not gonna be fun dropping that money every time, but it's sure gonna be smart.
Labels: challenges, money management, mortgages, saving
posted by J. Money at
11:46 AM
12 Comments:
Wasn't sure on the logistics, but knew it is a good thing to do -- that's why I've been putting in some extra dough each month for the mortgage, too : ). Thanks for the explanation - I'm glad it is reducing the interest due over the long term!
Its so true. Its under appreciated, but its so true. Not only is prepaying your mortgage a good move in terms of the mathematics of the issue, but paying off debt also has a big psychological boost.
I paid off my student loans lickety-split. I didn't even understand what the coupon meant (I mean, I knew but I thought, "who would pay only $50 per month?) and I sent in half my paycheck each month till it was done way ahead of schedule, the schedule of which I didn't even understand.
This was when I lived in a dump apartment with one other person and didn't have any bills at all. I couldn't even figure out what to spend my money on. Those were the days! It's been a long time since then!
Good advice. And don't forget (assuming you don't take on new debt) that every dollar you reduce from what you owe is a dollar you never have to pay again.
What an awesome post J! As you know I am a HUGE fan of paying off your mortgage OR done in reverse, saving for 100% down payment to buy a house.
You are in great shape man, and a fine example of how being debt free can help you better achieve your financial goals. With only a mortgage to go your are rocking it!! Keep it up!
@Jules @ Lovely Las Vegas - Good for you! I think that's wonderful. And btw, not sure if you've ever been to New Orleans or not, but I've been telling people around here that it's like Vegas on crack ;) Would you agree?
@Dual Income No Kids - "Its under appreciated" I'll agree! And wish I started earlier too, but at least we started :) You're right about that psychology about it too fur sure, good lookin' out.
@444 - Wowwww, good job though. That's incredible, I wish everyone (who could) would do that, it really does make a difference in what you end up spending on interest in the long run. You probably saved yourself *thousands* all in all, so congrats!
@Money Beagle - Yes! Totally, good point. Just wish I could hurry up and get my hands one even more money to start applying against it! I tend to do in phases about paying off debt vs savings, so hopefully this lasts a while ;)
@Enemy of Debt - I thought you might like that :) I literally JUST saw your post today on Motivation 101 & how I should pay off my mortgage more after I wrote this, so we have awesome timing! Going over there now to drop you a message...thx for the shout out brotha.
Always a good thing to do. I have my huge student loan payment that I have, $425/month is the required payment but I throw down $1400/month minimum. Taking advantage of that variable interest rate that is at 3.25 percent right now (it was once at 8!). Gotta love the fed fund rate at least for that reason.
Refinancing your mortgage to lower your interest rate by 1% to 2% will do wonders. Interest only loans usually have higher interest rates than 30 year fixed rate loans. Congratulations on the great progress you have made in paying off your other debts.
@Doctor S - WOW! Dude, you are on fire good work! Will that continue once the wedding sneaks up on ya? ;)
@Anonymous - I would LOVE to refinance, but unfortunately I cannot at this time (too under water). I actually do have a fixed rate though, so while it's currently interest-only, the rate will at least never change. So we have that going for us...even though it's stuck at 6.875% (our 2nd mortg. is hovering around 3%! haha...)
I considered this, but at 4.5% I just upped my 401K contributions instead.
That's not a bad idea either...I'm a big fan of maxing out 401ks and/or Roths before paying off big chunks of mortgages - which I'm currently trying to do...but I guess a nice mix of all is pretty smart too, all depends on what makes you feel better as they're all excellent ways to increase your net worth :)
Yay for paying off the mortgage early!! We've been paying extra since the beginning and in 4.5 years we've taken 3 years off the length of the loan. And we don't pay that much a month extra. We paid $50 a month for the first few years, then we bumped it up to $100 about a year ago.
Crazy!
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