Dollar For Dollar Debt Reduction

My wife and I continue to work towards paying off our mortgage.  Each month we make our regular mortgage payment – and then we make an additional, principal-only payment.

For those curious, we send the regular mortgage payment on the first day of the month – and the principal-only payment on the second day.  Our mortgage company (actually, the mortgage company that purchased our mortgage from our original mortgage company) has a somewhat rudimentary online payment system, so we simply initiate two payments, back-to-back, from our online checking account.

In the memo section of the second check, I put apply to principal.  I’m not sure if they even look at the memo – but so far all of the principal-only payments have been properly applied to our account.

As it stands today, when I make my regular monthly mortgage payment, roughly 60% of the payment goes towards reducing principal.  The other 40% goes towards interest.  Even at today’s low interest rates – ours is less than 4% per year – that’s a lot of interest.

We also have to pay, directly, for insurance and property taxes.

When we make a principal-only payment, 100% of the payment goes towards reducing principal.  Our principal balance is reduced – thus increasing the principal-reducing power of subsequent payments – and not one cent goes towards interest.

For someone who dislikes debt as much as I do – making these dollar-for-dollar principal-only payments feels great.  It’s awesome to see the impact that even relatively small amounts – $50 here, $100 there – can have on the debt reduction process.

In less than 3 1/2 years, we have reduced the actual term of our mortgage by 6 months – and we are on pace to pay off our 15-year mortgage in 12 total years.  If we focus a little more, we should be able to reduce that total time to less than 10 years.  We will be in our mid-forties, debt free, living in a paid-for home.  That’s the plan.

Side notes:  We are still funding our retirement and savings accounts – but less aggressively than we did before we purchased our home.  We both feel that owning our own home – outright – is our top financial priority.

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