Several years ago, a representative for a financial services approached us and showed us that by paying only one-half of our mortgage payment every two weeks plus a small monthly fee, we could cut our mortgage payments as many as seven years. At that time, we still had a little over 20 years of mortgage payments to go. It sounded wonderful and very tempting after all, who wouldn’t want reduce their mortgage payments by 7 years? However, we did not signing up for it for a few reasons. One, I remember that Microsoft Excel spreadsheet has a template called Loan Amortization. Second, we refused to pay any fee.
So, if you want to pay off your mortgage or loans (any loans), here’s the steps. Some of the information that you need are your total principal amount; that is original loan plus any fees that you rolled in and not paid out such as your refinancing fees to your new loan, commissions etc.
We will use this example original principal (mortgage) $100,000, refinance fee that we rolled in, $5,500. Interest rate, 4.5% and the term of the mortgage is 30 years and our closing was on October 1, 2016. Then, open Excel and go to File, select New, choose Sample Template, then select Loan Amortization.
Fill in the number in the appropriate cells as such, and voila you can see the breakdown of your mortgage of how much goes toward interest and how much goes toward principal. Please note that if you escrow you property tax and insurance, the total payments listed here is less that your actual monthly payments because this schedule DOES NOT include your escrow. In this particular mortgage, its, total monthly for principal and interest combine is $534.55. From that amount, only $138.93 is paying toward its principal and $395.63 is paying for the interest. Furthermore, the table to right indicates the totals interest you would have paid had you not made any additional principal payment. Your total interest is over 82% of your principal amount.
The conclusion, it is definitely it makes a lot of sense to pay any extra payments as you possibly can. Even if you could only afford an additional of $20 a month, your mortgage would be reduced by 2 years and total interest is 76% to the principal compared to 82% savings of more than $7,000. But what if some months you could pay an extra of $100 and some months you could spare $150 while other months there’s nothing left to put in, which was our scenario before. If that is so, leave the cell that says Optional extra payments on the top blank; instead enter your extra payments for the month as applicable.
Please note that if you are still carrying other debts such as credit card and/or auto debts most of which interest rates are higher, it would wiser to payoff those first before working on this particular one. And, the good news is, this schedule works with your car loans and credit card debts as long as the number of payments are in multiples of 12 when paying monthly.
So there you go, a simple table that can greatly help you save thousands, and the best part is it’s Free if you already have Microsoft Excel installed in your computer. With that, I would like input from others who have use this method or any other method to pay off their loans or mortgages quicker. Tell us your challenges and/or you success stories. Thanks!