You’ve heard the expression, “Pennywise and pound foolish?” Well, it’s especially true with how some folks treat their mortgage. Many are more concerned with the interest they’re getting on their savings account than the interest they’re paying on their mortgage. We’ll talk about that today on Faith and Finance.
You’ve heard the expression, “Pennywise and pound foolish?” Well, it’s especially true with how some folks treat their mortgage. Many are more concerned with the interest they’re getting on their savings account than the interest they’re paying on their mortgage. We’ll talk about that today on Faith and Finance.
It’s a good thing to shop around for the best interest rates on savings. But our point is, it’s a whole lot more important to pay attention to how much you’re paying in interest on your mortgage, because efforts to reduce that will pay off so much more.
Just take a hard look at the amount of interest you’ll pay over the life of a 30-year fixed rate mortgage— and it should be all the incentive you need to pay it off as fast as possible.
Let’s say you take out a $300,000, 30-year fixed-rate mortgage at 6.5%. At the end of that term, you’ll have paid almost $383,000 in interest, making the true cost of the home closer to $700,000. With today’s higher interest rates, it’s more important than ever to get your mortgage paid off as quickly as possible.
So, let’s say you take out that 30-year mortgage but you decide to pay an extra $250 a month on the principal. You might have to make some sacrifices to do that, but again, it’ll pay off “big.” How big?
If you pay that extra $250 each month, you’ll pay off the 30-year loan 8 years and 2 months faster, saving you $120,000 in interest!
So you see, the potential payoff for getting rid of your mortgage early is huge, and it really needs to be a priority in your financial decision-making. There are several steps to getting there.
STEPS TO PAY OFF YOUR MORTGAGE EARLY
1. SPENDING PLAN: You need a spending plan! You can’t start the process of accelerating your mortgage payments without one.
And setting up your spending plan is now easier than ever with the FaithFi app. It uses the envelope system to make budgeting easy, and it’ll track your spending and reveal things you can cut to free up more cash.
For example, cut back on your streaming services, limit eating out, and put a moratorium on new clothes purchases, even if it’s just for a month or two. If you need more incentive to tighten the belt, consider that saving just $25 a month and putting it on your mortgage will net you $17,000 in reduced interest payments in the example we gave before.
2. ADDITIONAL PAYMENTS: The next step is to determine just how much of that extra cash you can apply to your mortgage. You can even make it a budget category all by itself. The point is, anything extra you put on your mortgage now will be worth a lot more down the road, so make that number as big as you can.
3. EXTRA CASH: Now, the next step is to use money that comes your way outside of your budget. Some call it “found” money or “mad” money. Make a commitment to put that unexpected cash on your mortgage principal, as well as the surplus money you’ve identified in your budget. This could be money from overtime pay or a work bonus, a tax refund, gift money, a yard sale, etc.
The trick is to apply that money to your mortgage principal as soon as you get it. Don’t let it sit around tempting you. If you haven’t set up an online account with your lender, do that now. Most lender websites now make it easy to apply extra payments to the principal just by clicking a button or two.
On this program, Rob also answers listener questions:
What should you consider when determining the right time to buy a car?
What is the benefit of a revocable trust?
How should a younger couple go about budgeting to save for a house?
Remember, you can call in to ask your questions most days at (800) 525-7000. Also, visit our website at FaithFi.com where you can join the FaithFi Community, and give as we expand our outreach.
