Wednesday, August 10, 2016

How to shave years off your mortgage without refinancing!

Recently, I've been seeing a lot of NY Lottery advertisements.  Apparently, the jackpot is growing and folks are getting excited about it.  I admit that every once in a while I buy a ticket and start to dream about what I would do with my winnings.  I have to admit that I am a pretty boring dreamer because the first things I think of are paying of my student loans and mortgage (then I'll plan a big vacation).

Those of you who have been reading my posts for a while know that I am ALL ABOUT paying off debt.  That mortgage debt is a big one.  Paying if off feels pretty unobtainable.  Many people just barely qualified for a 30 year fixed mortgage, let alone a lesser term.  If you started that mortgage at the age of 40 or more, you are looking at being stuck with that payment until you are 70 years old.  While, that might sound fine for some, the idea of being saddled with that payment beyond the age of 60 is daunting to say the least.  So, what do you do about it?

Perhaps you should consider making one extra payment per year.  Let's look at some numbers.  If I opened a $150K  mortgage today (8/10/16) with a 30 year fixed rate of 3.40% (APR), my monthly payment would be $532.18 (this does not include the property taxes, which many of you will roll into the monthly loan payment; the property tax amount does not matter for the sake of our scenario, just know that you will have to account for that).

If I paid only the exact payment every month my loan would be paid in full on August 10, 2046.

What happens if I make one extra payment per year.  If I paid an extra $532.18 to the principal each year (on Aug. 10), that make my payoff date Dec. 10, 2042.  I know many of you are thinking that coming up with an extra $532.18 each August is going to be difficult.  What if you divided this "extra mortgage payment out over the course of the year?  You would be paying an extra $45 per month, and your loan would be paid in full by Nov. 10, 2042 (1 month earlier this way).  I don't know about you, but I could come up with $45 per month!  If I could double that, my mortgage would be done by Dec. 10, 2039.

I know these dates seem really far away, but let's look at it another way.  An extra $45/month (or 1 extra payment/year) gets my 30 year loan paid off in just over 26 years.  When I doubled it to $90/month (or 2 extra payments/year), my 30 year loan would be paid off in just over 23 years.

So, if you cannot qualify for a mortgage term that is less than 30 years, this strategy may help you save yourself a lot of years in mortgage payments (not to mention money in interest).  If you would like to see what your own numbers would look like, I like the calculators on, but really there are a lot of them online, and you can easily change the dollar amounts, interest rates, and dates to suit your needs!

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