I’ve decided on a new term: mortgage erosion.
Erosion is the result of small forces effecting big change over long periods of time. It’s pretty much the perfect metaphor with personal finance.
Yes, you can make large sweeping changes, but most personal finance and frugality advice is in the small day-to-day activities. You’re told to take “baby steps” toward frugality/debt reduction; you “snowflake” debt; one author tells you to get out of debt on just $5 a day.
Little by little, these drops make a dent in your debt mountain.
And so I want to become yet another proponent of the aforementioned mortgage erosion.
A few of my relatives have made bigger payments to get rid of their mortgages faster. My grandmother convinced her husband to pay off the mortgage faster. (Good thing, too, because the factory closed down shortly thereafter.)
My aunt and uncle refinanced their mortgage after about 5 years and put themselves on a 15-year loan. Then they made double, even triple, payments. They wanted to have it off their minds. More importantly, they wanted to be able to work part-time without constant money worries.
Tim and I definitely want to pay extra on our loan. How much extra, we’re not really sure about. Today, though, I was reminded that even a small bit helps.
Actually, this came about somewhat out of laziness. I was fondly remembering that our rent check each month was $700. Nice and easy to remember. Now, our payment is $657.81. It’s nice that it’s less, but that’s a weird number. I’ll never remember it. In fact, I had to look at it again just so I could type it in this post.
I realized that maybe it would be easier on me (and our mortgage) if I just wrote a $700 check each month. So I went online to some amortization calculators.
By paying $43 a month extra, we will be done with our mortgage 5 years sooner. Far more impressively, we’d save over $20,000 in interest!
If we can boost the payment up to $800 a month, we’d be done after only 18 years — and we’d save over $40,000 in interest.
Impressive, to be sure, but for many of us, an extra $100 — or even an extra $40 — can be tight. So, out of curiosity, I calculated $10 extra a month.
You only finish up 4 months early, but you still save over $5,000 in interest! That’s quite a return for a sawbuck.
Of course, any kind of debt will react to this maneuver. If you have credit card debt, you probably have high interest rates, which means the results will be spectacular indeed.
For now, I think Tim and I will stick with $700. By the end of the year, we should have a better idea of what expenses will be for the household. Then we can decide to boost the payments.
And even if, next year, times are tight, I’m sure I could at least push it to $725 a month.
Of course, the extra money needs to come from somewhere, so here are a few ideas on how to drum up extra cash:
- Get $25 for opening a checking or savings account with Capital One 360. I use this for all of my savings accounts because I get better interest rates than at a physical bank. To qualify for the bonus, use my link and deposit at least $250.
- Cash back sites: Get paid for purchases you’re going to make anyway! I recommend Mr. Rebates, Ebates, Extrabux and DollarDig.
- Use rewards programs like Swagbucks, and cash out for PayPal payments. (Check out my Swagbucks for Beginners post.)
- Mystery shopping: Learn more about mystery shopping, and read my reviews of mystery shopping companies.
- Switch to Republic Wireless. The average customer bill is just $13.82 a month!
- Start a professional blog (for $3.49!): Bluehost will give you a free domain, free site-builders and a one-click WordPress install. Its hosting starts as low as $3.49 a month, and there’s a 30-day money back guarantee. If you prefer someone else do it for you, iMark Interactive will set up your entire blog for no charge. The only caveat is that you will have to buy a domain name in addition to paying for hosting.