How to Pay Down Your Mortgage Faster
I know a way to reduce a mortgage balance by nearly $30,000 in four years. We’ve done it. Since we refinanced our house in early 2003 (original mortgage $190,800), we’ve reduced the balance to $163,400. We did it by sending our mortgage holder additional money each month toward principal curtailment.
There are two schools of thought on prepaying the mortgage, and I’m solidly in the ‘do it’ category. Before anyone points it out, I concede had I put the additional $200 each month into an S&P index fund, I would have done better than the 6% interest on my mortgage.
I don’t care.
I believe the piece of mind that will come with owning my home outright outweighs the amount we’ll be ‘missing out on.’
So for those interested in doing so, there are three easy ways to pre-pay your mortgage:
- Send in an additional amount each month with your regular payment. This is the method we use and if you pay by ACH/electronically, it’s particularly easy. Just tell the servicing company what additional amount you want deducted from your checking account and it’s done automatically. Doing it this way eliminates the temptation to skip sending in the extra amount during those ‘tight’ months if you pay by check.
- Make thirteen payments a year instead of twelve. This isn’t possible with all mortgage servicing companies (including mine), but it’s particularly useful if you get paid biweekly like I do. Twice a year you get paid three times in one month. Send that money to the mortgage instead of spending it.
- Put bonuses and/or tax refunds toward the principal balance. This takes a good bit of self-discipline. It’s hard to pretend you didn’t get that $1,200 back from the IRS.
It’s not for everybody, but if you’re inclined to pay down your mortgage quickly like me, these are three ways to do it.
mortgage
July 16th, 2007 at 11:27 am
I agree completely with this. My wife and I put somewhere between 1/3 and 1/2 of “extra” money toward our mortgage. This includes bonuses, ESPP money, stock option money, etc..
Over the last 5 years, we’ve cut our mortgage balance from $220K to $143K, and we’re hoping to have it paid off by the end of 2010.
I would never prepay a mortgage in lieu of other savings, but once you have other savings plans in place pre-paying a mortgage is a smart move, both for the peace of mind and the diversification benefits.
July 16th, 2007 at 12:06 pm
Peace of mind only comes when you’re close to it.
July 16th, 2007 at 7:23 pm
I don’t necessary agree in paying down your mortgage faster, but at least you acknowledge that you’ve thought about investing it and chosen to go the other way. It’s a grey area in personal finance and the better move is the one that you are most comfortable with.
I would personally lose sleep knowing the hundreds of thousands that I’d be “missing out on” by not investing.
August 22nd, 2007 at 5:21 am
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