The idea of not having a mortgage payment and truly owning my house makes me salivate like a dog standing over a nice medium rare T-bone steak. I’ve been prepaying on my mortgage for a few years to knock some of the interest off and pay my home off early. I’ve taken a very unscientific approach to paying the mortgage off early. I’ve simply added $150 to my monthly payment. This works out to more than an extra payment each year and should help me pay off the mortgage around 7 years early. I fully expect that I’ll use any windfall money to pay down the mortgage with a goal of having the mortgage paid off by the time my daughter reaches college.
If I had the equivalent of my mortgage payment available each month to fund college costs, it would make the prospect of escalating college costs a bit more bearable. So, I decided to run a few scenarios to see what it would take to pay the mortgage off even faster. I used a free online calculator here.
Pay off home in 20 years: Add $150 to each mortgage payment
Pay off home in 15 years: Add $400 to each mortgage payment
Pay off home in 10 years: Add $950 to each mortgage payment
Pay off home in 5 years: Add $2650 to each mortgage payment
These are all rough estimates. Obviously it seems most attainable to pay the rest of my mortgage off in 20 years. $150 doesn’t really impact our budget too much and does save us quite a bit in interest over the length of the loan. Most likely, we’ll be able to pay off our mortgage earlier than 20 years with the investment we are making in our lake house. I fully expect that we’ll be able to sell the lake house within about 5-6 years and use the proceeds to pay off our home mortgage. Just in case we decide to keep the lake house long term, we are going to keep paying an additional $150 towards our mortgage principal each month.
If you own a house, I’d highly recommend checking out the calculator above to see what different scenarios would do to your mortgage.
One other note: I don’t think that the bi-weekly payments offered by most mortgage companies are really that great of a deal. If you could simply sign up for that service at no charge, I’d like it a lot because it automates the whole process of paying additional on your principal. Unfortunately, every program that I have seen so far charges an up front cost of a few hundred dollars and then charges you a monthly fee to stay in the program. Quite frankly I don’t understand why the banks/mortgage companies don’t do this for free. By signing you up for it, they set up automatic payments which reduces the likelihood of late payments etc.