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!
Yowza.
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.
Double yowza.
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.
One tip – make sure you designate the extra $ as additional principal payment and then watch your statements like a hawk to make sure your mortgage company applies it correctly.
Sonja,
Thanks, that's a good reminder. I'll call the company to be sure it'll be applied directly to the principal.
🙂 I don't know if your company does this, but mine has a line on the payment stub where I can write in what my extra principal payment is for the month. That helps too!
Hello. Would you please send me your excel spread sheet too.
Jean, you can find calculators online that will do the same thing. I use bankratecalculator.com
I’m almost sure they have to apply the extra to principal, but your contract may vary. I know I had an employee at a car loan company try to explain other wise to my girlfriend. She was saying something about the it going to the next payments. I didn’t want to head complicated crap. I especially dislike hearing technical details 3rd hand. So, instead I looked at the statements and put the numbers into Excel. The car loan company had applied the extra to principal correctly. (Excel and they agreed to within pennies.) Interestingly, if you had paid extra then figured they didn’t really need the next months payment.
What matters to you is: If you get a Home Equity Line instead of a traditional mortgage you can destroy it. In that case just send every extra picture of Ben Franklin to the bank. If you need a little extra money (say to pay taxes) then you just write a check. You only pay interest on the outstanding balance. Why should I get 1% from my credit union and pay 3% to the mortgage company? I didn’t. And I don’t have a mortgage.
This is one of the most basic personal finance 'tip' that someone with a mortgage should do, and incredibly just a small percentage do! The peace of mind offered by your completely mortgage free home is, priceless. The sooner the better.
Abbie, I suggest you set your mortgage amortization up on an Excel spreadsheet. Use formulas. Each time you prepay, enter the amount. You can immediately see the impact on each subsequent payment and on the final payment. I call this "mortgage chipping", but I like your "mortgage erosion" too.
You can also easily play "what if" to your heart's content.
I will be happy to email you my spreadsheet if you are interested.
Petunia,
How did you know I am an excel nerd? I do everything in Excel whenever possible. And I was just thinking this morning that I should check my numbers in Excel!
I may take you up on the spreadsheet offer. First I'll try to do it myself and compare it to the amortization schedule to see how accurate it is.
Could I get your spreadsheet as well, thank you!
Sure! Just a note: I’d slowly increase the amount for taxes and insurance, since they’re bound to go up over time.
Thank you.
Hello, I just saw you have an excel spreadsheet on this can I get it? Also what other spreadsheets do you have for excel. I like excel spreadsheets. Thanks
Ha, no other spreadsheets at present (other than figuring out our taxes, which can’t be translated to other people). But I just emailed you a copy. That said, some people have had trouble with it. If so, I really do suggest an online mortgage calculator. They abound on the ‘Net.
Would LOVE to have your Excel spreadsheet!
Happy New Year!
Sue
Hi Petunia, could you please send me your spreadsheet? I would LOVE to do this. We JUST bought a house.
thanks so much!!!!!
I’d love to get an attachment of your excel spreadsheet also….if you don’t mind.
Petunia 100 – would you mind sending your spreadsheet to me, since you're offering it up? I keep meaning to sit down and do mine but haven't found the time.
Thank you!
Sure Christina, it is on its way.
Hi! Just wondering if you still have this spreadsheet?
Thank you!!
Hi there! I just sent it, so keep an eye on your inbox/spam folder.
May I please receive the spreadsheet also?
Thank you!
Okay, things are getting a little confused around here. Did I send it to you? If not, let me know and I’ll get it out to you.
May I get a copy of your spreadsheet too? Thanks in advance!
I would also like a copy of the spreadhseet. We are buying a home this year and would live to know how to pat it off sooner ..
Could you please send me the spreadsheet also? Thanks so much.
Oh this makes me so happy to read! May I too have a copy? I would greatly appreciate and promise to pay it forward to someone else 🙂
Thanks!
MODERATORS: Please take out those email addresses since the harvest machines for the spammers will get them soon enough. If you would be kind enough to leave the address Spam@FTC.gov here then the scammers and spammers can harvest that address and report themselves.
Thanks for the reminder. I’ll go through and do that momentarily.
Could you please send me a copy of your spreadsheet? thank you!
Can I get a copy also thanks
You have to designate where the money goes. Calling after the fact won't help much. There is a line for the extra principal You should see the principal go down by more than the principal payment on your statement each month. The math is easy. But, with excel you won't have any pesky pencil and paper and trouble. You automatically get an amortization schedule when you take out the loan. I loved watching it go from $12 on the principal to finally $190 on the principal. The mortgage payment was $192 for 30 years, so it was not much to start with. I am just glad it is GONE!
This is how we did it multiple times in different houses. We got 30 year notes and acted like they were 15. Then whenever we had any extra, boom to mortgage erosion!! A couple of times during those 30 year timelines hubs was laid off for a short time and we went to just making the regular mortgage payment, but as soon as he was back to work we went back to prepaying as much as we could. An elasticizer if you will. This only works out for you if you are disciplined in getting the behemouth off your back.
Another way of chipping away at mortgage mountain even faster is tackling your amortization schedule upside down. Take that last payment principal amount and include it up front…major time decelerator! Then do it again next month, etc. Pretty soon you’ll have years gone from your mortgage timeline. Even if you can’t hack the larger principal chunk at least try to bite off the interest from that last payment in addition to whatever other monies you can find to speed up your erosion factor! I may not explain it very well. Look for John Avanzini’s book ‘Rapid Debt Reduction Strategies’ and his ‘War on Debt’ books.
Also a warning – EVERYONE who makes extra principal payments needs to make sure with their lender that there are no pre-payment penalties.
We did this early on in our married lives and overall made our financial lives MUCH more stable. The last two houses we bought? We paid cash. The last two nearly new vehicles purchased with cash. It works.
Wow, way to go! I like the upside down amortization idea. Very clever!
I tweeted this page to my network. You have some great ideas.
Another way that you can chip away quickly at a mortgage is to make an extra payment each year. That may sound like a daunting task, especially if you’re thinking of trying to make an extra one around the holidays. A very wise person made the suggestion to us when we began our first mortgage to take our principle payment and divide it by 12, then add that amount to each payment. That way by the end of the year, the extra payment has already been made throughout the year…pretty sizable mortgage erosion for such a small sacrifice
Yep, I’ve heard about that method because that’s going straight to the principal. Our payment is relatively small, so it wouldn’t be that big a hardship to fork over a bit extra when we get the bonus. Unfortunately, something just broke. So until we know how much that’ll be, I’m not going to worry about an extra monthly payment.
I work in the mortgage field and on a 30 year loan if you made one additional payment each year you will cut 7 years off of your 30 year loan!!!
A negative that you have to keep in mind is that if you payoff your mortgage you will not have any mortgage interest to claim on your taxes at tax time…..
Yeah, people say that. But I think not having to pay hundreds or thousands each month is utterly worth deducting a few thousand on your taxes. That said, our mortgage is very low. So we already don’t get any deductions.
Can i ver a Copy of spreadsheet also?
Hello, I love this idea. However, I keep getting errors when I try to complete the interest column (E3). Also I pay my insurance and taxes separately so do I need to even use that column?
Hello Again,
I got it all figured out. I’m not sure if it has to do with the program but you were using some brackets that I didn’t need. But it’s all good now.
Can you tell me how you figured it out. Because I am having the same problem
I’ll email you the spreadsheet. I think I’m going to take the instructions down, as there’s apparently something I failed to translate properly.
I would like the spreadsheets.
Thanks!
Wow grwat tips, thanks! Could you please send me the spreadsheet?
Thanks again.
Could you please send me the spreadsheet? Thanks!
Could you email me your spreadsheet also?
Please email me your spreadsheet, thank you!
Can you please email me your spreadsheet also? I’m sure you are getting tired of hearing this request, but it must be good! Everyone wants it! Thanks!
Just goes to show that just a tiny bit extra can make an impact even if it’s a small one. Paying g your house off 4 months faster just means you have 4 more months of less stress. I’m guilty of rounding g up too. I can’t stand weird numbers!
Exactly! Even 4 fewer months is huge stress-wise. If nothing else, that’d be more than $2,000 not going out of our budget in those 4 months.
Hi. We are late bloomers so we need all the help we can get toward financial independence. Please email your spreadsheet if you will. I’m sure we can figure out how to use it. Thanks everyone for the advice!
Just emailed it to you.
I would also love your spreadsheet!
Thanks so much!
I need all the help I can get, please send me a copy too.
Kudos to you guys! We’re actually close to selling our house but definitely planning to do aggressive mortgage paydown on a future house! When we move back to where we grew up, we can purchase our “forever home” and go after that mortgage! Although, if our house now was a viable rental property – I would absolutely start chipping away at it. I think our best bet is to offload it before the market crashes. Thanks for the inspiration!
Millennial Boss recently posted…Balancing Two Careers
I hope your sale goes through easily. And yeah, it’s really not worth paying anything down too rapidly if you’re not going to have the house for the life of the loan. Much better to find the house you want to stay in and make it your own as quickly as possible.
These are great ideas and my mother-in-law taught me this trick many years ago! I’ve never tracked our progress like this before though. It sounds like your spreadsheet would be fun to watch. Can you also send me a copy?
Love this! I have been doing the same and making it an even number as well. For the first 3 years or so we were paying an extra 160-130 dollars a month depending on how the mortgage fluctuated. Right now I am on a little hiatus because we just had two children back to back and I can’t seem to part with the extra dough at the moment. This is a good reminder that it doesn’t need to be so much and that even doing 10 bucks more a month will contribute to our financial goals. Looks like I’ll be skipping a couple of to-go coffees to make it happen again. Also worth nothing is that the earlier you make additional payments towards the mortgage, the more effect is has on the term of the loan. When we first moved in and I couldn’t find a new dining table we liked, I wound up keeping our hand-me-down and taking that extra thousand I had designated for it and making an additional lump payment towards the principal! Of course if you are not in the place to do it having just bought a house, don’t! But if you can afford to in any capacity, you’ll find it’s SO worth it. Now off to make my own cup of coffee and resume some goals!
Well congrats on the kids! I can understand not wanting to pay a lot of money with two more, helpless-without-you creatures in your life. Glad this helped remind you about the other options. Enjoy your homemade coffee. I don’t drink the stuff (just think how much I’ve saved over time!) but I hear you can make some pretty good stuff at home.
Hello! May I please have a copy of your spreadsheet as well? Thank you.
Hi,
Can I get a copy of your spreadsheet as well? Thank you so much for the information!
Hi can i get a copy of the spreadsheet as well!
Sent!
I would love to get your spreadsheet also!
I have not yet purchased a house, but am in he process. If I may have a copy of the spreadsheet, I’d like to be prepared for when the time comes. Thank you!
Another idea to try ( I saved $800.00 ) doing this for 3 years!!! Check to see the value of your home . Go on Zillow .com and compare the price of your home to othes that have sold in your area. It must be apples to apples. Then check w/ your mortgage company and compare it to the value they have for your property taxes. I discoverd that I was paying more than the actual value for my property taxes than I should have been paying. I contacted my assessor ( easy to find on the bill) Called him ,made copies of examples, asked him NICELY if he could look into it for me. He put me on his list. 2 weeks later a new LOWER, REVISED tax bill. OH YEAH!!!!!
This is brilliant way to save money. No doubt, there are enumerable post on mortgage debt repayment but this is something incredible. Impressive stuff.
It’s funny how the little mental tricks can have such an impact on us. Especially with personal finance writers, we like to think that we’re calculating machines — always rational.
But sometimes, the mental games can still win over. Yea, your rounding up to $700 makes sense in a pretty obvious way when you whip out a calculator and amortize the payments offer the life of the loan.
But, hearing it form a monthly perspective it doesn’t sound like a lot of money yet has a huge impact over time.
It’s fun to find those little motivational mental tricks.
Chris@TTL recently posted…How We Became Millionaires at 33
Yep, these days I add my guest house’s rent and some saved savings to the payment every month — and I’m on track to have it paid off within 5 more years (for a total of 15 or 16). It’s very exciting!
I recently left Republic Wireless. In 2011, it was about $19 per month. Taking a look back at where RW began and where they’ve ended up now is quite distressing, always changing and hiking prices. I switched to Tello and couldn’t be happier. Mint Mobile has good plans too.