My husband and I recently purchased our first home, and while it's all very exciting, the reality of having to paying a mortgage payment every month for 30 years is a bit overwhelming. However, now that we are getting the hang of things, and know what our finances look like post-mortgage we plan to start paying extra money toward our loan principal each month to reduce the length of our loan and the amount of interest we are charged. This is what our mortgage looks like now, how we plan to pay extra, and how it will affect our mortgage overall.
What our mortgage looks like now
Our current mortgage payment is $304.52 a month not including our escrow payments . If we pay this amount alone every month it will take us 360 months or 30 years to pay off our loan. It will also cost us nearly $42,000 in interest charges to pay off our mortgage of the course of 30 years.
How much extra we plan to pay
After speaking with our lender, we learned we will not be penalized for making extra payments toward our principal loan, so we sat down to decide what, if anything we could afford to put toward paying our loan off faster. Taking into account all of our other financial responsibilities, we found that we could afford to pay $80 extra dollars a month, and to make a $500 payment one time a year, every year by using our tax refund. That means we will pay a total $1460 extra a year on our mortgage.
How much time and money we will save
Our current payment schedule has us making our final payment in 2042; however, by paying down the principal faster we will move that last payment up to 2030. That means our 360 month loan will now be paid off in 214 month, which saves us 146 payments, or around 12 full years.
It will also save us quite a bit of money in interest charges. If we pay according to the 30-year schedule we will end up paying $41,728.08 in interest; however, by paying the loan off 12 years sooner we can reduce that cost to just $23,242.23, which is a total savings of $18,485.85.
I know there will be months when we simply can't afford to pay extra on our mortgage, so these numbers are likely to change over the years. However, that doesn't stop me from making it my goal to pay our loan off as quickly as we can.
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