[spotnnotfarm]

My husband and I are working on becoming debt free in the next three years. As long as we do not have a major catastrophe, in 2 1/2 -3 years we will owe nothing excpet our mortgage.

I have heard that if you make one extra payment a year it cuts your mortgage in half. Is that true?

[tle]

Depends on too many factors to say that, but I think it's more like 1/3rd. IIRC, if I pay an extra payment per year, my 30 year mortgage goes down to around 22 years. There are mortgage calculators online that will add in an additional payment (all at once or if you prefer to pay bi-monthly which will also equal an extra payment).

My parents always payed an extra $100 per month. Goes straight to principle and does make a difference, especially early in the mortgage when you're paying SO much interest per payment (vs principle).

Congrats on your plan! Good luck!!

[Daatje]

We bought a house July 2011 and the mortgage broker told us that making one extra payment on principle a year (for a 30 year loan) will shave 7 years off the loan. Not exactly half, but that's a huge savings in interest for just one extra payment! We're going to try to do two additional payments to princible a year. Our goal is to pay our 30 year mortgage off in 15 years.

[spotnnotfarm]

We just re-financed our house and went from a 30 yr to a 15 year. I would like to have it paid in 7. Once we have the rest of our debt gone I plan on putting 1/2 the extra money on the mortgage. It really is a freeing feeling!

Has anyone else ever done it?

[wsmoak]

Without doing the math, that sounds a bit aggressive. I'm sure there is some combination of numbers that would do it, but it really depends on the amount and your interest rate. You'd have to plug it all into an amortization calculator to be sure, but any extra you can pay (especially early in the loan term) is going to help!

Here's one I found in a quick search
http://www.mortgagecalculatorsplus.c...nalpayment.php

[TequilaMockingbird]

We refinanced our house from a 30 year loan to a 15 year loan with a 3% interest rate. Our monthly payments increased by only $50 because we got such a better interest rate. It was originally 6.875%.

Before we refinanced I was paying an extra $50 towards principal every month anyway. Paying the extra $50 speed up the payoff a lot because the first couple years on a mortgage are almost entirely interest. Very little of it goes towards the principal.

There are lots of ways to pay off a mortgage earlier but all of them involve money of course. The best plan is to focus on paying off the debt with the highest interest rate or things that are essentially unsecured loans (credit cards, student loans etc). I'm sure you've already done that. If not, that's where I would start.

[Lucassb]

This site has a pretty useful calculator for assessing the impact of different mortgage payment strategies (paying biweekly, making extra payments, etc.)

http://www.mtgprofessor.com/Calculat...culator2b.html

Remember to account for any impact on your taxes that you will have from reducing mortgage interest (assuming you take that deduction) if you go that route.

[grayarabpony]

I don't know about the extra payment a year, but we paid extra on the principal every month.

[Guilherme]

Get out your Excel program and set up a mortgage amortization table. You can play all kinds of "what if" games that way!

Some private mortgages do have "pre-payment penalty clauses." Read yours to be sure it doesn't. If it's VA or FHA it won't have one. Conventional mortgages sometimes do, but when they do it normally applies only for the first five years. But, in reality, you have to read your own mortgage to see what it says.

My son, at my advice, is "doubling his principal" each month. He has a 30 year VA mortgage and when we ran a speadsheet he cut the time almost in half by doing this and will save more than $75,000 over the term of the mortgage.

With interest rates as low as they are it's an open question whether or not its better to pay them down sooner or invest "pre-payment dollars" in some other vehicle (equities, bonds, etc.). A consultation with an independent financial advisor (one who won't try to sell you something) would probably not be a bad thing before making a final decision.

G.

[Bacardi1]

We started with a 30-year when we bought our place back in '97, then refinanced a few years later to a 15-year at a much lower rate & with almost nothing in added-in closing costs (so nothing required out of pocket). And since hubby always adds $100 or more towards the principle every month, our mortgage has very little time left before we can have a mortgage-burning party. Yay!!!

[spotnnotfarm]

We started with a 30-year when we bought our place back in '97, then refinanced a few years later to a 15-year with almost nothing & added-in closing costs (so nothing required out of pocket). And since hubby always adds $100 or more towards the principle every month, our mortgage has very little time left before we can have a mortgage-burning party. Yay!!!

Congratulations! I hope to join you someday!

[tle]

My son, at my advice, is "doubling his principal" each month. He has a 30 year VA mortgage and when we ran a speadsheet he cut the time almost in half by doing this and will save more than $75,000 over the term of the mortgage.

The only thing I don't agree with here is this process. A 30 year mortgage is going to have a higher interest rate than a 15 year mortgage AND his total monthly payment wouldn't have been doubled (a common myth -- that the payments for a 15 year vs a 30 year mortgage are doubled). if he's going to pay it off anyway, why not go for the initial 15 year mortgage and REALLY save some money?

Don't get me wrong... I'm thrilled for your son to be able to pay off his mortgage quicker. Just think it would have been even more beneficial to just take the 15 year mortgage in the first place.

[IronwoodFarm]

I'm absolutely all for chipping away at mortgage principal; I have a long history of doing that. At the same time however, you have to consider your mortgage in relationship to whatever other debt you may have. We have been going through a period of historically low interest rates for mortgages. Mortgages can be one of the cheapest loans around compared to credit cards, car loans and student loans to name a few. Mortgage interest also gets special tax treatment and discounts its cost for many of us.

Still, you may be better off reducing other debt first or even looking at savings vehicles, rather than reducing the mortgage principal. Don't get me wrong, it's a great idea but it really depends on your personal financial situation.

[tle]

Yes, reduce other debt first, but never EVER continue a mortgage JUST for the tax benefit. The math just does not support it as a single reason for continuing to be in debt.

[JanM]

I think if you pay directly to the principal of the mortgage it pays down fast, but be careful that the extra payment is only going to the principal, and not interest, etc.

Another reason to reduce the principle of the mortgage is to have less owed, in case you sell that determines how much money you get for yourself after the closing costs/commissions are paid.

[JanM]

I think if you pay directly to the principal of the mortgage it pays down fast, but be careful that the extra payment is only going to the principal, and not interest, etc.

Another reason to reduce the principle of the mortgage is to have less owed, in case you sell that determines how much money you get for yourself after the closing costs/commissions are paid.

[Bacardi1]

Yes - our mortgage holder/provider/whatever-they're-called has a specific box for "amount applied to principle" payments for you to designate.

[JanM]

I think most mortgage and realtors have amortization programs showing how much pricipal you pay each month, and how many years off that is. I think the biweekly payments (be careful, some lenders charge extra for the auto transfers for this), for a 15 year mean you pay off in 12+ years, but I'm sure that there are quicker ways.

I can't figure out if it's principal or principle, so sorry if I'm using the wrong one.

[Guilherme]

The only thing I don't agree with here is this process. A 30 year mortgage is going to have a higher interest rate than a 15 year mortgage AND his total monthly payment wouldn't have been doubled (a common myth -- that the payments for a 15 year vs a 30 year mortgage are doubled). if he's going to pay it off anyway, why not go for the initial 15 year mortgage and REALLY save some money?

Don't get me wrong... I'm thrilled for your son to be able to pay off his mortgage quicker. Just think it would have been even more beneficial to just take the 15 year mortgage in the first place.

You are correct, but when he bought the house almost four years ago he did not qualify for a 15 year mort. based upon his income. Even now he's on the "ragged edge" of qualification and if he did go for 15 years it would put him closer to the "financial edge" than he's comfortable with. He was able to re-fi is VA Mort. and cut his interest rate by just over two points.

When I say "double the principal" I don't mean "double the payment." For example, if the principal in Jan. is $50 then add $50 more; that doubles the principal paid. As the months pass the principal balance will continue to decline and the principal amount per month will continue to rise. When it's $52, then add $52 more (for a total of $104). When it's $53, add $53 and now it's $106. And so forth.

If in a given month you can't do that (car repair, sick kid, house repair, etc.) then don't and you lose nothing but some time. If you can do more in a given month then do so (as you get more bang for your buck further down the road).

As long as mortgage interest remains deductible the homeowner should be very careful about paying off such a debt. You're getting a taxpayer financed subsidy. If it looks like this will "go away" then the equation changes.

G.

[tle]

As long as mortgage interest remains deductible the homeowner should be very careful about paying off such a debt. You're getting a taxpayer financed subsidy. If it looks like this will "go away" then the equation changes.

When I went through a Dave Ramsey class last fall he mentioned this. I don't remember the numbers, but it doesn't work out if the ONLY reason to hang on to the mortgage is the interest deduction. Really. You end up paying MORE in interest than you save in the deduction. So you're trading paying the bank instead of the IRS. Why not pay the loan and then you can pay yourself.