Today’s post is by Monica who is attempting to pay down her 30 mortgage ASAP. You can follow her personal finance blog at MonicaOnMoney.
Hi everyone! I always assumed that I would have a mortgage for the next 30 years.
Until recently, my goal was to pay off my house before I retire somewhere around 65 years old. But, I recently researched some online mortgage calculators and started playing with the numbers. Now I’m excited to figure out how soon I can pay off my mortgage.
Paying off your mortgage early is an amazing way to build your wealth and gain financial independence. Figure out how much you’re willing to pay each month or each year to save thousands of dollars in interest! Let’s look at some hypothetical examples based on some online mortgage calculations:
30 YEAR MORTGAGE, NO EXTRA PAYMENTS
Let’s consider if I choose a $200,000 mortgage and 4.5% interest rate on a 30 year mortgage. If I follow these payments and don’t make any extra payments, in 30 years, I will have paid $364,809 total, including over $164,809 in interest payments alone.
Wow! This is almost enough to buy the same house again!
If I start the 30 year mortgage with bi-weekly payments, 1 extra payment each year will be sent as a principle payment. This will pay down my mortgage faster. So, the $200,000 mortgage will be paid off in only 25 years. I will pay $238,112 total, including $138,112 interest. These bi-weekly payments would save me $26,697.
Now we’re starting to really see the savings add up! And these bi-weekly payments can be set up automatically by calling your bank. You can set it and forget it.
15 YEAR MORTGAGE, NO EXTRA PAYMENTS
Or, I could choose a $200,000 mortgage with 4.5% interest rate on a 15 year mortgage instead. Refinancing to a 15 year mortgage is another way to save thousands of dollars on a mortgage. If I make those payments for all 15 years and don’t make any extra payments, I will pay $275,397 total, including $75,397 in interest.
That’s a savings of $89,412 compared to the 30 year mortgage! Wow!
IS IT WORTH IT?
So, is it really worth it? I say yes, absolutely! But of course, it depends on your financial goals. After paying off my mortgage, I will have financial independence and I can’t wait! What could you do with the extra money you save on all that interest? Maybe you could even BUY ANOTHER HOUSE with all that extra cash. Or you could just start saving all that extra money towards your retirement. Or you could retire early.
What do you think? How much money could you save?
When is it better to pay your mortgage slowly instead?