How to cut your mortgage in half, Part III

In Part I we went over pros & cons for 15 year mortgages, in Part II we looked at some alternatives that will shave some time off your repayment period but won’t reduce it by half. This time I’ll show you two methods, including my favorite way, to cut your mortgage in half. It’s a little more complicated than the other methods but it’s pretty satisfying.

Method number one is simplicity itself, sort of like getting a 15 year mortgage. Ready for this simple little secret? Just make the same payment that you would if you HAD a 15 yr mortgage even though you don’t. Easy peasy. If you don’t know what that magic number is, let me know the basics about your mortgage, balance, interest, taxes & insurance amount and I’ll tote up the sums for you. Or, you can use that calculator right over there —–>>

Method number two is a good bit more complicated but it has its own charms. First thing you’ll need is an amortization schedule. If you’ve just bought your house you should have one that they gave you at closing. If you don’t have one, again, drop me a line with the details from your last statement (balance, interest rate, payment amount including principle & interest only) and I’ll email you one.

You can click on any of these screen shots to embiggen them and see what I’m talking ’bout. I’m using a $100,000 mortgage at 5% in this example. Your regular payment is $536.82 with only $120.15 going toward the principle balance that first month. I’m not including any taxes or insurance to muddy the waters.

Here’s what you are going to do that first month: get out your amortization schedule and your checkbook, pay $536.82 (the first payment) + $120.66 (the principle amount for the 2nd month’s payment). Once you pay that, you can cross off two payments instead of just that first one. You will still have to make your payment each and every month even if you paid that extra bit the previous month.

Month number two you are going to pay $536.82 (3rd payment) + $121.66 (principle amount for the 4th payment). And then you can cross off those two payments. If you keep going along like that, you’ll end up paying your mortgage off in 15 years, basically by paying two principle payments each month.

You might notice that the extra amount you are paying is going up (albeit slowly) each month. It will keep doing that all the way through the life of the loan until, at the very end, you’re paying almost twice as much as your regular payment. The reason I like this method best is that the average homeowner is pretty strapped for cash at closing. It takes a while to recover from that and be prepared to pay a good bit extra every month. Your income will typically go up over time and you’ll be able to afford that higher payment once you get to that point.

The other reason I like this method? It’s awfully satisfying marking off two payments at a time. If you are really ambitious, you can even work on marking off three payments at a time.

Happy mortgage paying!