I knocked off years from my mortgage

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toptaxguy
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I knocked off years from my mortgage

Postby toptaxguy » Fri Jul 04, 2008 4:51 am

Last year my wife and I purchased a new home and our mortgage was $210,000 and was amortized over 25 years. Our monthly payments were $1,236.36.

First:
After negotiating the mortgage, I called the bank and asked if I could make weekly payments of $309.84 (1/4 of the monthly payment). This accelerated my mortgage payments and reduced the interest I would pay over the life of my mortgage because I was effectively making an additional monthly payment per year and reduced my amortization by 3.6 years. I also saved $27,100 in interest.

Second:
Last year in January, I received a bonus of $1,600 that I immediately applied to the mortgage and this cut off another 15 weeks off my mortgage and saved me about $3,100 in interest.

Third:
In June of this year I received a 5.3% pay raise and I called my bank and asked to increase my payment accordingly. The new weekly payment is now $325 and this shaved off another 1.5 years and saved me a further $10,000 in interest expense.

Fourth:
This month I received a promotion and received a further 6% raise and again called my bank and asked that the payments be increased to $346 per week. This saved me a further $11,100 of interest and reduced my term by another 1.7 years.

At this point if I don't make any further adjustments or principal payments my mortgage would have been paid off in just under 18 years.

Finally:
I plan on increasing my mortgage payments by the same percentage as my annual raises which normally occur in June. If I assume I get a 3% raise per year, keeping my interest rate constant, I project that the total term of my mortgage would be 14.5 years and I would have saved a grand total of $67,500 in interest.

Kate
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Joined: Sat Apr 28, 2007 9:37 pm
Location: Ottawa
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Postby Kate » Fri Jul 04, 2008 5:32 pm

Great job, Dean. This is just what we did to pay off our original 15 year mortgage in 10 years. We paid half the monthly payment every two weeks, increased the payments with hubbies raises, put a $5000 lump sum when we had some extra cash. It really makes a difference.

galactic
Posts: 580
Joined: Sat Dec 29, 2007 9:30 am

Postby galactic » Fri Jul 04, 2008 7:01 pm

great job! paying down the principal while it's high saves you tons in interest. the weekly payment is a great idea- i had not thought about that. will incorporate into my mental archives for future use.

doesn't that scare anyone... drop $1600 on your principal a year into your mortgage, save $3100 in interest over the rest of the loan... :o hell of a rate of return! mortgage interest is intense stuff.

consultantjournal
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Location: Vancouver, Canada
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Postby consultantjournal » Sat Jul 05, 2008 2:44 pm

Excellent! We've been making balloon payments, too. We haven't increased the regular payment, so that, in an emergency, we aren't paying more than need be. But we put all bonuses, tax refunds and more toward out mortgage, effectively making triple payments.
Andrea Coutu
Consultant Journal
www.consultantjournal.com

Dascoon
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Joined: Mon Aug 04, 2008 7:29 am
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Postby Dascoon » Tue Aug 05, 2008 12:00 pm

Well, it isn't a great rate of return, the rate of return is exactly his mortgage interest rate which his loan is at.

However, the weekly payments can be good especially if each payment is applied at the time it is recieved instead of being placed in escrow and then paid normally. This way you keep the money from copounding over the course of the month saving you money.


I recommend setting up an automatic payment instead of entering into an agreement to continue the higher payment, that way if something were to happen in the future you would have flexability reducing the payment to the required level until the situation passed.


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