No this is not a get-rich-quick scheme. (I said nothing about doubling your money quickly.) Today is the 8th and most people who know me will attest to the fact that I'm having trouble sitting still today, because today I get to pay down just a little bit more of my mortgage. (Oh goodie) which means that late today or sometime tomorrow I'll go down to the line on my basement wall and record exactly how much of my home I own free and clear.
There are a few people in my life who aren't entirely sure why I am so hell-bent on paying my mortgage quickly. One of the reasons, besides the fact that I just love a challenge, is that it is an easy way to double my money with really no effort involved. Take, for example, the 10% principal payment I made in March. Being a curious little soul I wanted to know exactly how much interest I was going to be saving over the life of my mortgage from that one simple payment. I paid $15,200 against my principal and, as a result, I will not have to pay $20,126.44 in interest.
Is it worth giving up that money now to save in the future? I certainly think so. There are a few factors that affect how much your prepayment will save you:
- Your interest rate. Mine is at 3.09% and the interest saved assumes that that will be my rate for the life of my mortgage instead of just for the next 5 years. Since I can't see the future that will just have to do.
- When you make the payment. The sooner you pay the more interest you save. Yes, most people have more money later in the life of their mortgage than at the beginning but every little bit helps.
- Length of your mortgage. The longer the initial length of your mortgage the more interest you pay in total so the more you save with a prepayment.
Granted I won't see that $20,126.44 right away. I'll see it incrementally over the next 30 years. It is delayed gratification compared to running out and spending that $15,200 on a trip. However, it also gives a lot more options to my future self than a week-long vacation.