We have a 15-year fixed-rate home mortgage – and we are working hard to pay it off in less than 10 years.
We purchased our home in February of 2010. The original mortgage term of our our loan was 180 months, with the loan due to be paid off in March of 2025. So far, we have whittled away 7 months from that date.
Here’s what we do –
Each month we make our monthly mortgage payment. We do so via an auto-draft from our online banking account.
Then, we make an extra, principal-only payment. We write (type) the words “apply to principal” in the memo section of the check. Our mortgage company knows to apply this payment towards our principal – and to not treat it as a prepayment for the next month.
(Once in a while, we will combine these payments into a single check – or withdrawal from online banking – but I prefer 2 separate transactions, so that I can more easily keep track of our extra payments.)
Throughout the month, should we make any extra money – or find that we do not spend any budgeted funds – we’ll take that money an send it to our mortgage company, as an additional principal-only payment. Often, we’ll have months where we send 2 or even 3 principal-only payments.
I have seen all kinds of formulas for reducing a mortgage, including bi-monthly payments, or adding an extra payment at the end of the year. These definitely work – but for us – our simple system works. We make our payment – then we make a principal-only payment (usually just a few dollars) – then we work hard to make (or save) extra throughout the month – and we send that.
Our approach is hands-on and keeps us focused on this long-term goal. (We are paying off our mortgage in addition to saving for retirement and kids’ college.) Blessings.