I am following Dave Ramsey’s baby steps. I am currently debt free except for the house. Working on our emergency fund right now.
First, you’ll be able to see how little principal the early payments subtract, and thus, how additional payments in the early years of the loan have the greatest impact
You’re young and I bet you’ll have that house paid off by the time you’re 45. That’s the age I’m hoping for. I’m in my 30’s.
You’ll be fine as long as you have the income to do it. Your young age is also on your side ??
Get a printout of the amortization schedule for your specific loan, from your lender
Will $50 or $200 a month even make a dent? Are you kidding? If you add an extra $200 per month to the principle then over the course of a year you have lowered the principle amount by $2400. That is miles faster than just leaving it as it is… and blowing the money of cappuchinos or whatever. But wait, there’s more (thanks infomercials LOL) not only is your yearly balance $2400 less (actually slightly more coz your table mortgage principle goes down fractionally (very fractionally) each month, but you are paying less interest as well on the outstanding balance.
Let me illustrate using nominal numbers. Say your mortgage is currently exactly $100,000. You make your normal payment of $x plus add find more $200 to the principle payment. Next months payment will be $100,000 minus $200 minus that fractional payment. But let’s just forget the fractional for our calculations. So next months principle payment is now $99,800. If you then add $200 to the principle payment for the next month you will be paying interest on $99,800 and adding another $200 to the monthly principle reduction payment. So for the third month you will be paying interest on $99,600 and so on. This snowballing effect just magnifies over time (relatively short periods of time I might add) Albert Einstein said (allegedly) that the most amazing thing in the universe is compound interest. Credit Card companies and banks know this only too well. Make it work for you, not against you. Do that $200 a month extra payment. Your life down the track will thank you handsomely. Oh, and don’t buy into the bigger house syndrome either. Means more insurance, taxes, upkeep, heating, cooling, decorating, financing. All which means more money out of your pocket and into theirs. Better for you to have the money to do the things you want to do. Good luck and happy principle investing from the Kiwi guy in lil ol New Zealand.
Having all your money in one place can be extremely beneficial. Firstly, you can see exactly how much you owe on everything. You view one account and know how much money you have to pay back. Also, there are definite financial benefits to a current account mortgage.
These are great ideas for accelerating the payoff of a mortgage, but one additional item is very important. Also, pre-payments in the early years of the loan have the greatest impact on how much interest you pay and how fast the loan is retired. It also can serve as a way to track which payments you knock down when you pay principal early. It may be a little retentive, but you might want to consider adding up the amounts from the principal column, writing a check for the largest sum of these that you can handle at a given point in time, copying the appropriate page(s) from the amortization schedule, and sending that in along with your pre-payment. This helps you keep track of where you are in the loan, and lets your lending institution know that you’re keeping track of things. It takes a little extra time, but you’ll know where you stand.