When you think about it, the amount of interest you pay over the life of a 30-year mortgage should be plenty of incentive to pay off the loan as fast as possible.
Let’s say you take out a $250,000 30-year mortgage at 7%. At the end of that term, you’ll have paid almost $350,000 in interest alone, making the true cost of the home closer to $600,000.
But let’s say with 25 years to go, you decide to put an extra $250 a month against the principal. That will actually shave off six years and 10 months' worth of payments and save you just over $83,000 in interest.
So, the potential payoff for getting rid of your mortgage early is huge, and it really needs to be a priority in your financial decision-making. There are four steps to getting there.
First, you need a spending plan. That’s not just because it’s a good idea and everyone should have one, which is true. You need a budget because you can’t start the process of accelerating your mortgage payments without one.
And setting up your spending plan is now easier than ever with the FaithFi app. It uses a digital envelope system to make budgeting easy. It will also track your spending and reveal things you can cut out to free up more cash.
Here are a few budget-cutting ideas:
Dump your cable or satellite service and go with a streaming package. You can probably save $50 or $100 a month just doing that.
Take a break from eating out. Try to go a month making all your meals at home. You’ll probably save a few hundred dollars.
Finally, see how long you can go without buying new clothes. That would probably save you many hundreds of dollars, as well.
You can probably come up with some great ideas yourself to save money that you can then apply to your mortgage.
Once you know how much extra cash you have to put on your mortgage, you can make it a budget category all by itself. Remember— even $100 a month extra applied to the principal on your mortgage will shave off a few years of payments. So you’ll want to put as much as possible into that mortgage payoff category.
You may start to feel deprived because you’ve cut out a lot of your “fun” spending. It helps to celebrate milestones along the way. A special dinner out, maybe, whenever you’ve paid off another $1,000 in mortgage principal. Just keep celebrating within the budget.
Now, the next step is something anyone can do, even if you’ve been thinking up to this point that you have no surplus cash to put on the mortgage. It’s using money that comes your way outside of your normal paycheck. Some call it “found” money or “mad” money. Make a commitment to put that unexpected cash on your mortgage principal, as well as the surplus money from your budget.
Where does this extra money come from? It could be just about anywhere: overtime pay or a work bonus, money from work you do on the side, a tax refund, gift money, or cash you get from selling stuff.
The trick is to apply that money to your mortgage principal as soon as you get it. Don’t think of it as mad money that you can spend any way you like. Don’t let it sit around tempting you.
Most lender websites now make it easy to apply extra payments to the principal.
And while you’re logged in, you’ll be able to see the running balance of your principal.
Keep track of it. Watch it go down faster as you make extra payments. That’ll help you stay motivated.
This isn’t something you want to delay. The sooner you start, the more money you’ll save, and that’s money you can put to better uses. Be patient— you’re in this for the long run. Proverbs 21:5 says, “Slow and steady plodding brings prosperity … “
Okay, we hope that helps you get started today on your early mortgage payoff plan. Let us know how it’s going. We’d love to hear from you.
On today’s program, Rob also answers listener questions:
- What is the best retirement investing approach for a couple in their 30s?
- If you have a small business, are you required to pay taxes quarterly?
- When parting ways with an employer, should you roll the funds out of your current 401k?
- What’s the wisest investment approach for a 29-year-old?
RESOURCES MENTIONED:
Remember, you can call in to ask your questions most days at (800) 525-7000. Faith & Finance is also available on the Moody Radio Network as well as American Family Radio. Visit our website at FaithFi.comwhere you can join the FaithFi Community, and give as we expand our outreach.
