Classic mortgages are pretty straight forward after you finally jump through all the hoops and complete all of the paperwork to get one. You have a set amount to pay per month for the term of your loan, which is determined by the amount you need to borrow and the interest rate you agree to pay. And little changes to those payments can save you to thousands of dollars!
Just Round Up Your Monthly Payment!!!
Did you know that just rounding up your payment to the nearest $100 could save you thousands of dollars during a 15-30 year mortgage term?! I was blown away when I saw the calculations.
To prove my point, I’m going to share my real numbers for our current mortgage (you can check out all the details of our current, 3750 sq. ft. house in this other post).
- Original loan amount – $207,448
- Original loan term – 30 years / 360 monthly payments
- Interest Rate – 4%
- Our Monthly Payment – $990.39
That $990.39 is just our mortgage payment since I don’t escrow. I put aside $1000 a month into a separate account to cover the property taxes on our current home and our rental home. The best home budget software helps simplify this kind of stuff.
For all of the calculations you are about to see, I’ve been using Financial Mentor’s Bi-Weekly Mortgage Calculator since it allows me to play with my bi-weekly AND extra payment numbers.
What Could Have Been
If we had just rounded our $990.39 payments up to $1000 each month, we would have saved $3147 in interest and 6 months of the term by the end of the mortgage. $9.61 a month would have saved us $3000+!
If I started that right now, 45 payments down the road, we’d save $2275 in interest and shave 5 months off the term. Not too shabby!
Or, what if the mortgage is only for $100,000 at 4% for 30 years? That’s a $477 payment. If you pay $500 instead, you save $6800 in interest and shave off nearly 2 1/2 years of payments!!!
Tiny bits matter.
Trick Yourself with Bi-Weekly Payments
Another little trick for yourself – did you know that paying half of your mortgage biweekly could save you tens of thousands of dollars over the life of a mortgage?
It’s because you end up making 26 half payments (the equivalent of 13 full payments) instead of 12 full payments. It “tricks” you into just making one extra mortgage payment a year! That one extra payment makes a HUGE difference!
For us, making an extra payment per year from the beginning would have saved us more than $23,000 in interest and shaved off more than 4 years from the term! If we just started that now, 45 payments already made, we’d shave off about $17,000 and 3 1/3 years.
For that imaginary $100,000 mortgage, making an extra payment from the very beginning would shave off more than $11,000 in interest and 4 years from the term!!!
Automate Your Extra Towards Principal
Making extra principal payments – whether just a few dollars, enough to equal a whole extra payment, or even more – is REALLY EASY.
- First, decide how much extra you are shooting for – rounding up to the nearest $100, a whole extra payment a year, or more?
- Then contact your mortgage lender and ask to add that extra onto your automated monthly payment and apply it towards your principal. Those are the key words – ask them to “apply the extra towards principal”.
- Sit back and SAVE THOUSANDS!
I know it sounds like a boring use of money, but mortgages are usually large sums of money paid back over large sums of time, which means you can save large sums of real cash by just paying a little more right now.
I Haven’t Been Following My Own Advice
We paid off our first house in a total of 6 years. But we haven’t made one extra payment towards principal in our current one. NOT ONE EXTRA DIME TOWARDS PRINCIPAL.
I justified that we are both self-employed and it would be better to keep more cash on hand…not tie up money unnecessarily into the mortgage.
You know what? Yes, that is a financially sound decision made based on logic and it would work. Know what else? It doesn’t make it any easier to swallow that about $650 of every one of our last 45 mortgage payments has just going to interest!
UGH!!! I hate just handing away money for what feels like nothing. I know it’s the price we chose to pay to borrow money…well, I’m choosing to knock that sh*t off as soon as possible!!!
Jumped Back On the Pay-It-Off Bandwagon
I called our mortgage company last week. I got a real person on the phone in less than 60 seconds, so when he asked “what would you like your payment to be now?”, I literally replied, “You got on the phone so fast that I hadn’t worked that out yet…”.
He told me to take my time. 🙂
I decided to just go for it. “Let’s make it $1250 a month…we can see how much that hurts after a month or two.” He laughed and set it up.
Do you know what $1250 a month instead of $990.39 will do for our mortgage?
It will shave off a full 8 YEARS and SAVE US $40,500 in interest! $40,500!!!
Yeah, I know we may actually feel the $260 hit to our budget each month. But not as much as you’d think…
Where Am I Stealing the $260 From?
See, I just switched us off of our health insurance plan that was $570 a month and onto a healthcare sharing ministry plan, specifically Liberty Healthshare, for $299 a month. That is a whole blog post review for the future after I get to test it out a little…
For today’s purposes, that new, lower healthshare payment starts in September, which is also when our new, larger mortgage payment starts. Might as well toss $260 of that savings onto the mortgage…saving $40,500 in interest sounds great to me!!!
How You Can Afford to Murder Your Mortgage Too!
I’m not a naïve elitist or a schmuck. I know that “simply” coming up with extra money every month for your mortgage may not be easy. BUT, I am a budgeter AND an entrepreneur. I know you can cut something a little more or find a little extra income.
you don’t need to pay hundreds extra per month to save thousands!
Less than $10 extra a month towards principal would have saved me $3000 overall!
So if you want to murder your mortgage and save thousands of dollars too, here are some solid ways to come up with extra money ($10’s-$1000’s) to throw at your mortgage principal:
- Save on your monthly/regular bills. You can either request lower rates or switch to new, cheaper plans or companies. For example, with our smart phones, we went from paying $150 a month with Sprint to paying around $80 a month with Ting Wireless FOR THE SAME SERVICES. You can check out my review of Ting here to see if it would be a good fit for you. If you end up wanting to switch, please use my referral link and receive a $25 credit for yourself too!
- Cut back on luxury expenses and extras. For us, that would be eating out and splurging on snacks just because of our cravings. Just cutting back on $5 a week gives you $20 a month to throw onto your mortgage payment!You can also cancel extras like cable if you want, but you don’t have to cancel stuff to get it cheaper. You can call companies and ask for better deals. Our roommates like having cable and pay for more than half of it, so I call at the end of every contract and work out a low deal again.
- Blogging and other online work. I make between $1000-$3000 a month just with this site. I make between $2500-$5000 a month online overall. You can get started with a blog – hosting and a domain name – for less than $50 a year. That’s why I started – it was a cheap hobby…that turned into a side hustle…that turned into my full-time career. Please use my referral link (https://budgetboost.co/bluehost) if you go that route, and email me so I can help you get started!
- Rent out a room. My husband and I have rented out space to friends off and on since we bought our first home. Doing the math, we’ve lived with other people for 6 ½ years from 2007-2016. It has brought in more than $50,000.You can find a roommate through your friend groups, reach out to people directly through sites like Facebook, or even try Airbnb (if you use my referral link, you’ll get a $35 credit for a future stay). It’s not just a great way to save money when traveling; it’s also a way to bring in income too. A few of my friends rent out either a room and, occasionally, even their entire home on Airbnb.
- Try other non-traditional types of investments such as real estate crowdfunding. Fundrise performance seems to be consistently good for example based on reviews and comparisons. Its not for everybody but you may want to give it a try.
- Try seasonal, short-term, or part-time gigs. Here are my favorite 31 summer job ideas – includes tutoring, baby sitting, bar tending, and the best paying survey sites. Those gigs could also turn into side hustles or even careers if you enjoy them. I started Crystal’s Cozy Care Pet Sitting in February 2014 as a fun side hustle, but now it’s a full-time job that brings in an average of $2500+ per month.
Does any of this sound awesome to you? How fast do you want to be mortgage-free? Or are you holding onto the current cheap interest rates now and investing your extra cash elsewhere? At the end of the day, you can also choose to refinance if there has been an improvement in the refinance mortgage interest rates.