Pay Off That House Mortgage Early

I recently read an article that was titled, “Should You Pay Off Your Mortgage Early?” Since I often encourage others to get rid of all debts as soon as possible, this article intrigued me. What could possibly be a positive about allowing your home mortgage to linger for the full 30 years? Just as I expected, it was a calculation between the amount that one could gain by investing rather than putting it toward the mortgage. If one could make 6% interest on an investment right now, then the author argues that they should invest rather than pay off the 5% mortgage. While I do understand the logic, I still don’t fully agree with the argument.

Your home loan rate is most likely around 5% at this current moment in time. If you would put your money into a high-yield savings, you might make 1.5%. If you put it into a CD (certificate of deposit) at the bank, you could get a little higher rate, most likely around 2.5%. Clearly, 5% is still greater than 1.5% or 2.5%, so in these scenarios, I would advise that you focus on paying off your mortgage.

One could argue that the stock market has averaged a 12% gain per year, and if we were investing for the long term, we could definitely win by investing our additional funds rather than put more toward the mortgage. But, have you seen the market lately? No one really knows what will happen given our unstable economy.

I would much rather guarantee myself a 5% rate of return by paying down a mortgage than investing in a volatile stock market that could either plummet 20% or gain 20%. Wouldn’t you?

Let’s say we just purchased a house and took out a loan for \$100,000 at 5% for 30 years. My payment would be \$537 a month. At this point in time, I could pay a lot more than \$537 a month, so I decide to put an extra \$1,000 toward the principle each month. How much money could I save, and how many years could I take off the mortgage?

According to this handy dandy calculator, I would save \$76,368, AND I would pay off my loan in just over 6 years rather than 30! Isn’t that great! Then, after those 6 years, I am completely debt free and can sock away over \$1,500 a month into investments.

You may think this is unrealistic….”no one has an extra \$1,000 a month to put toward their mortgage!” Incorrect. My friends are on this very plan. They had a mortgage that was a little lower than \$100,000, and they decided to go with the 15 year loan to save on the interest. Since they got such a good interest rate, their payment is still incredibly low, allowing them to put an additional \$1,000 toward each mortgage payment, PLUS they are contributing to their Roth IRA each month. They will be mortgage free in less than 5 years, and I am incredibly proud of them.

You may have purchased your home a while ago and you are wondering how much you could save if you started making extra payments now. Enter in your numbers in the calculator above and find out what the numbers are!

How much could you save, and how much sooner could you get rid of that mortgage?

AUTHOR Derek

My name is Derek, and I have my Bachelors Degree in Finance from Grand Valley State University. After graduation, I was not able to find a job that fully utilized my degree, but I still had a passion for Finance! So, I decided to focus my passion in the stock market. I studied Cash Flows, Balance Sheets, and Income Statements, put some money into the market and saw a good return on my investment. As satisfying as this was, I still felt that something was missing. I have a passion for Finance, but I also have a passion for people. If you have a willingness to learn, I will continue to teach.

1. I hope one day to be able to start making additional payments on our mortgage. Meanwhile, we need to focus on our debt… One day, though! đź™‚

• I hear ya Aloysa. My wife and I are still fighting to pay off our debts too. In another 6 months I think we’ll finally be free! Good luck to you!

2. The stock market hasn’t been too bad lately (the vast majority of mine are up) but we’re still paying off our mortgage early. Our goal is to have it gone by Dec 2011 — which is a pretty massive goal since it means we’ll need to increase our income by probably \$7500 or so per month in order to make.

• Great job paying off that mortgage early! Wow, I bet you can’t wait to be completely debt free by the end of next year. Keep up the good work!

3. One very important factor is the deduction you have on your taxes when you have a mortgage. The article is fantastic – unfortunately, general public cannot come up with an extra \$1,000 right now during this horrible economy, they are lucky to have food and electricity. It has happened to the best of them. I have seen several friends run out of their life savings and I’m not talking about a couple of grand…I am talking about 1/2 million dollars….health issues..a death – a lost career! these are the things the young seem to be missing in their thinking…having not lived an actual disaster (except for the current economy) – they do not know how to protect what they havem they keep looking forward not at what is. Very important when it comes to finances.

I have had friends who have lost their medical insurance, who have had to take paycuts of up to \$30,000 a year, who have lost their career all together – I knew a very successful real estate person – well guess what – investments are gone along with the career….now at the ripe age of 40 they are trying to get in another field.

I once knew a gal who had a brand new car – an illegal immigrant hit her and ran, got caught – went to jail over night only paid \$150 (the car was stolen and no insurance) – her car was totaled and cost her thousands to get a new car not to mention the loss of the \$10,000 she put down on the car….

I would like to see articles of making it thru this terrible economy. How about how to save your roof over your families head? Most people are struggling right now – not flourishing. How to begin investing with \$10. that would be fantastic for young people – most do not have alot to invest.

Always a great idea to pay extra on your mortgage to eliminate the amount of interest paying to the bank – if you own your own home you probably already know this – that is why they took out the 30 year mortgage in the first place – to be able to lower payments and to free up cash on a monthly basis for other things in life. and have that write off.

Depending on where you are in your life – young, middle aged, or towards retirement we all have different priorties with our finances. What was important to me in my 20’s nd 30’s is no longer a priority. I know retired folks, who could care a less on their mortgages – they have sufficient Life Insurance that they do not care. Which is another point, why not take extra Life Insurance to protect your family from financial disaster?

Real Estate is a great investment – for it does increase in value – much more than any other investments, the key is how to invest in what type of property, etc! Good Luck to all – remember PROTECT YOUR FAMILIES FINACNES!

4. We paid for our 3rd and 5th. houses in cash. We started a business with the money from house 3 and assumed a rotten morgage on house #4 to do it. Once the business was going – we refinanced at a lower rate, 15 years and had a 5 year pay off goal. We paid off house #4 in 3 years. By the time we were ready for house #5, we had all the \$\$ we needed saved (it was 13 years later)and we didn’t even have to sell house #4 to do it. I highly recommend a no-mortgage scenerio to anyone. It’s made our lives 1000% easier. Now if we could just get rid of those pesky real estate taxes (smile).

• Haha! It sounds like you’ve had an amazing journey! After our first house, I definitely plan on using a no-mortgage plan. Not only will it give me great deals on property, but it makes things easier too! Thanks for the comment.

• Alright – that is terrific! I also think my next home/piece of property will be paid with cash! looking at retirement properties now – where to go in this great big world? hummm Bahamas again….na too cold in the winter! giggles –

5. Pretty nice post. I just stumbled upon your blog and wished to say that I have truly enjoyed browsing your blog posts. In any case I will be subscribing to your feed and I hope you write again very soon!

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