We never got around to painting over the "builder's white" in the main living area of the home we had built in 2005, but we have made progress on paying down our mortgage balance.
My goal is to be mortgage free in my 40s. With interest rates as low as they are, most financial experts say I'm being foolish.
According to an article in Kiplinger, we are becoming a nation of "debt-phobes." More borrowers, the story pointed out, are opting for shorter-term loans when they refinance their mortgages. In fact, in the third quarter of 2011, 40 percent of those who refinanced a 30-year fixed-rate loan chose a 15 or 20-year loan. That's incredible if you think about it.
As some experts say, paying off a mortgage early is 80 percent emotion and 20 percent math.
I know we will feel great when we have our mortgage paid off in less than 10 years. Because of the financial choices we made in our younger years, our goal of paying off our mortgage in our 40s is realistic.
Buying a home we could afford on one income
Our first move was to purchase a home that we could afford on just one income. We purchased our home for $183,000 during the top of the housing bubble. Realtors and lenders told us we were approved to purchase a home for $350,000, but we knew we couldn't afford such high monthly payments, especially if one of us lost our job. We put 20 percent down on the house. Most of the money came from the sale of a townhome I purchased when I was 30.
Switching to a shorter-term loan
When our bank offered us a free refinance in 2010, we were thrilled to lock in at a lower interest rate. Instead of 5.9 percent, we now had a fixed rate of 4.625 percent. Instead of resetting the mortgage payment clock to 30 years again, we chose a 15-year loan. Because we had paid extra on our mortgage each month, the new payments were nearly identical to what we were paying before.
Bugging the mortgage company every month
I am happy to have a mortgage company that provides excellent customer service. I can call every month to talk to a customer service representative who will crunch numbers for me. He or she will figure out how much extra I need to send off in order to pay off our mortgage by a certain date. I also find out where we stand on our payoff date, which changes often since we continue to pay extra on the principal. Calling them keeps me motivated.
Making extra payments through online banking
I notified my mortgage company to apply the extra payments we make through online banking to our principal. Some experts suggest making bi-weekly payments instead of one monthly payment. For people with a 30-year loan, making bi-weekly payments cuts it to 22 years. They essentially shave 8 years off the loan. It works because people are making 26 payments of half their mortgage. In effect, they are making 13 monthly payments instead of 12. I think that's the way to go for most people. Since I'm borderline obsessive about paying down my mortgage, I don't bother with a bi-weekly payment plan.
Figuring out what works best for us
For me, the best strategy for paying off my mortgage quickly is to have a specific goal. I focus on paying it off while I'm still in my 40s. To accomplish that, I rounded up our $1,222.02 payment to $1,500. Once we got used to paying $1,500 every month, I started sending in extra payments when we received bonuses or tax refunds. At this stage in the game, we only have to pay at extra $242.02 a month in order to pay off our mortgage in our 40s. Once I get my mortgage paid off, I'll get around to painting my house. With all the extra money, I can hire a professional decorator.
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