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Last year, I was celebrating the fact that we were debt free in early August. By the middle of August, we had officially purchased a house and were once again in debt. I don't necessarily believe that everybody needs to take out a mortgage to buy a house, but it is the one debt that I accept. It can be okay to take out a mortgage, because a house is an investment. Now, this doesn't mean that you should go and put yourself into 30 years of debt. I am personally a fan of the 15-year mortgage, because I prefer to get debt out of my life as fast as possible. Due to this belief, my wife and I took out a 15-year mortgage and have been making extra principal payments.
Even though we are focused on paying off the house early, we don't sacrifice retirement investing. Therefore, we require 15% invested in retirement, prior to paying any extra on the mortgage. I would suggest making sure that you are always investing in retirement, because you don't want to lose out on the compound interest throughout the years. With that in mind, I have been calculating the amount saved over the course of the year, due to extra mortgage payments.
To calculate this amount saved, I have been using an amortization schedule. The amortization schedule is a document that shows every payment and how much will be paid in total over the course of the mortgage. When we received our mortgage at first, the total interest payment over the course of 15 years would have been $67,000. That is a lot in interest payments and that is the reason why banks become so rich off of the consumers. They would have made $67,000 in 15 years from my wife and I. Since, we have been making extra payments this number has decreased to $58,000. That number is still really high, but that number will continue to drop as we continue to make extra mortgage payments. Essentially, my wife and I will save $9,000 over the course of the loan, because we made the choice to make extra principal payments.
These extra principal payments will also speed up the pay off date of the loan. As of today, the extra payments has decreased the loan by 13 months. That's 13 less mortgage payments and that means that the mortgage will be paid off in a minimum of 13 years and 11 months. The pay off date can always decrease, with extra principal payments.
Our goal has been to pay off the mortgage in 10 years or less. We have a very good start in reaching this goal, but it is hard to calculate an exact date for pay off. We make a budget every month and our extra pay is based on any money leftover in the budget. Therefore, it is not the same every month. Although, I was able to calculate that we need an extra $555 going towards the mortgage each month to ensure that the house will be paid off in ten years. That would be an extra $6,600 a year.
Based on the information discussed above, I think that it is still very possible to hit our ten year goal for mortgage payoff. This is great news, but it's not all about us. You can do it, too! Debt freedom is a goal for everyone. Paying off your mortgage early is a goal for everyone. You can do it! You can budget and save. You can prioritize financial security over a new pair of shoes. It's up to you to take control of your finances and reach financial independence.
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If you are interested in my amortization schedule mentioned above, then e-mail me and I will send you a copy of the excel document.