Throughout the years, I've tried a variety of different strategies to pay down my mortgage. When our bank offered us a free refinance about two years ago, we jumped on the chance to lower our interest rate from about 6 to 4.625 percent. We may not have the lowest interest rate out there today, but we didn't have to pay any closing costs either. Although we could refinance again, I don't want to have to pay PMI (private mortgage insurance). My mortgage lender says I will owe PMI since the value of our home is down compared to when we bought it during the housing bubble. Also, we would have to pay closing costs this time, since the free refinance was a one-time only opportunity. Since we don't want to refinance right now, I came up with a new strategy to save us money on our mortgage.
Keeping it simple
Instead of paying a little money here and there, I wanted to come up with one "payment" to make to my mortgage company every month. Even though we owe $1222.02 every month, I decided to round it up to $1,500. A customer service representative from my home mortgage company told me I'd save $8,230 in interest by making that extra $277 payment every month.
Having different payment options
Although I'd ideally like to pay $1,500 once a month, I like the flexibility of being able to sometimes just pay my set mortgage amount of $1222.01. Then I can send in the optional $277 another week if money is tight. It's nice to have the flexibility to pay less money without any consequences other than having to wait longer to pay off our mortgage.
Getting closer to freedom
I've heard a lot of financial reasons why people do or don't pay down their mortgage early. However, I am more interested in having the emotional comfort of owning my own home outright. I know mortgage interest rates are extremely low. However, even a low interest rate doesn't help if a person loses their job or if they have high medical bills during retirement. By paying an extra $277 on our mortgage every month, we are set to have it paid off 8 years from now. Considering we have been paying on our mortgage for 8 years already, that means we will have essentially turned our 30-year mortgage into a 16-year mortgage loan.
Like many people, we were underwater on our mortgage for a few years. After that, we had zero equity in our home. At this point, we are still under the magic mark for having at least 20 percent equity plus wiggle room for closing costs in order to refinance. For me, it's nice to have security knowing I'm building equity in my home even if it's not much. Our home is now worth $123,000, according to Zillow. By the time we have our home paid off in 8 years, it should be interesting to see if it's back up to the $180,000 we paid for it. Even if it's worth half as much, I'll just be happy to be living rent-free and mortgage-free for the rest of my life.
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