One of the goals of most financially savvy adults is to operate without any debt. While it is easy to avoid certain types of debt, such as credit card debt; debts such as mortgages and student loans are somewhat necessary to get a boost. While getting rid of your mortgage will cause you to lose some tax deductions, you can always take the money that you save, give it to your favorite charity, and keep those deductions, because in the end, having no debt obligations is a fantastic feeling.
The majority of the mortgages held are 30-year fixed rate mortgages. They are designed for the borrower to pay on his or her loan for 30 years, or basically one half to one third of their lifetime. If you were to start a new loan for $250,000 (which is currently about the average price for a new home), at 4% interest, paying just the minimums will end up costing you almost $180,000 in interest charges alone. That is in addition to the $250,000 in principal you must pay.
By putting just a little bit extra toward your mortgage each month, you will not only pay off mortgage early, but also save money on interest charges. For example, putting just $50 extra per month toward the principal amount will shorten your loan period by 26 months and save you over $15,000 in interest.
Now over the span of 30 years shaving just 2 years off the loan is not a huge feat. But saving $15,000 is nothing to laugh at. Paying just $50 extra will do that much and $250 extra will do even more. Doing so will cause the loan to be paid off in 21 years and 7 months, nearly 9 years earlier than scheduled. It will also save you over $56,000 over of the next 21 and one half years.If you pay $250 each month extra toward your mortgage you will be putting out $3,000 per year. If you spread out your $56,000 in savings over those 21.5 years, you are saving $2,600 per year. So your extra $3,000 per year is truly only costing you $400 per year. Obviously you will not see those savings until you come to the end of the full 30 year term since they are interest charges you will not be paying during those 8.5 years you are debt free, but the savings are still very real.
There are three ways you can work toward paying off your mortgage early. You can take into practice the Miser for a Month tips and use the money you save toward knocking out that debt. Refinancing to a lower interest rate could help you save a few hundred dollars per month. Get your monthly payments lower, but keep paying what you have always been paying. Or earn more money; put your skills to work and for just a few hours of work per month you could be earning an additional $250 every month.
If you want to know just how much faster you can pay off your mortgage, and how much money you can save on interest charges, there are many different online mortgage calculators. If you run the amortization schedule you will see just where your payments are going, and you may be surprised how much of your money goes toward interest charges. Make your commitment this month to save money and pay off the mortgage early.