How Much Interest?
Last October, my wife and I were in a head-on collision with someone who was drinking and had no insurance. As a result, we ended up buying a car that needed to be financed. Still waiting on the lawyers to finish the case. We got some money for the car we had but not near enough to make up for the cost of the newer one.
Also, since moving to this area, we had been renting but in March, we closed on a new home.
Needless to say, we are no longer debt-free at the moment however, we can easily look back and know that if we had not been debt-free before all this came about, we probably would not be able to do what we have done. We were fortunate to be able to close on the house with a 4.125% interest rate.
What is interesting is that over the life of a 30 year mortgage, you can end up paying almost as much in interest as it cost to purchase your home in the first place. In other words, if you purchase a home for $200,000.00 with an interest rate of 4.125%, the interest over the life of the loan can be as much as $149,000.00.
Here are a few ways that you can start to not only save on some of that interest but also cut down the length of your loan by years.
Make half your mortgage payment every two weeks instead of once per month. This does a couple of things. First, since half your mortgage payment is made early, that is two weeks that you are not paying interest on that half of your mortgage payment. Second, there are 26 payments per year that way instead of 12 monthly payments. This means that over the course of a year, you are also making an extra months payment which will go towards principle, further reducing your interest.
Extra Principle Payments
With this idea, you simply make extra principle payments. What I mean is that when you have some extra cash available, you simply make a payment towards your principle. It does not matter how much this is. It could be as little as $7.00 or as much as an additional mortgage payment. For every dollar you put towards principle, it is another dollar that you will not have to pay interest on so the earlier you start, the better off you will be.
If you are at a job that pays a bonus, why not put it towards your mortgage? This is money that you typically would not plan on getting anyway so why not use it to help get out from under your mortgage.
Having been debt-free before, I know what it means to not have a mortgage payment. When you owe no one, the stress in your life goes way down. Wouldn’t that be nice?