First Extra Principal Payment Has Been Sent

A few days ago, I made my very first mortgage payment.  It felt so good, today, when I logged on to our mortgage company’s website and saw that the payment has posted.  It felt not-so-good to see just how much of our payment was applied to interest – and how little was applied to principal.

If I continue to make our mortgage payment, as scheduled, we’ll own our home in 15 years.  Each month, as we slowly chip away, a little more will be applied to principal and a little less will be go towards interest.  My goal?  To speed up that process – so that I can pay off the mortgage in less than 15 years.  Every extra dollar that I send will go directly towards the principal balance, build equity, and reduce total interest paid.

Towards that end, today I sent my first extra principal payment.  When making extra payments towards any loan, I always like to write “apply to principal” in the memo-section of the check.  In this case, I used online bill pay and instructed my bank to do the same.

The amount wasn’t much, but if I make an equal extra principal payment just once a year for the next 15 years, I will reduce the term of the loan by 5 months – and save over $2000 in interest!  Not bad – and that’s if I only made one extra payment per year.  Imagine the power of making an extra payment – each month!  Debt reduction rocks!

Here’s a neat little mortgage payoff calculator from the folks over at Dinkytown.  It’s simple, easy to use, and provides instant motivation.  Check it out.


NCN

http://www.ncnblog.com

No Credit Needed is a personal finance blog about debt reduction, saving money, and simple living. Thank you for visiting the site and please consider subscribing to No Credit Needed by Email. Have a blessed day!

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8 thoughts on “First Extra Principal Payment Has Been Sent
  1. David M

    I love making extra payments towards my mortgage. My wife works for herself and we do not need the money to meet our cost – thus whenever she gets a check – I go online and make an addtional payment.

    I do this whenever during the month I get the money so as not to forget – the interest I receive is so low the lost interest is immaterial. Just so you and others know, no matter when you pay the additional payment – it does not actually get applied until the next monthly payment. If you make an additional payment on the second of the month, they still do not reamortize your mortgage until the 1st of the next month – assuming your mortgage is due on the first of the month.

    I hate debt and thus make extra payment whenever I can – I have cut my 15 year mortgage down to an 10 year mortgage and have only been paying on this mortgage for 2 years.

     
  2. Evolution Of Wealth

    Interesting and congratulations (I guess). If that’s what works for you great. I will just never do it. I consider debt free having liquidity to offset any debt so that the debt can be paid off at any time. This way you leverage some debt. That’s why I can not seem to justify a 15 year mortgage in this environment. When rates where higher it made a lot more sense because the payment spreads where minimal but today they can be around 40% difference. I look at morgage acceleration a little bit different.

     
  3. sam @ moneypenny

    Great post!

    I love extra repayment calculators… I often use them to determine the “opportunity cost” of money. In other words, if you didn’t purchase that item for $1 today, and instead put it on your mortgage, how much would it save you in interest (and time)?

    For me, the opportunity cost of $1 is $4, but it’s different for everyone depending upon their situation. Even if you don’t have any debt of any kind, your money still has an opportunity cost, but it’s the cost of not saving / investing it.

    Thanks again for a cool post!