Comments (scroll down to add your own):

1. First let me say that I cannot currently refinance due to being “up-side-down” on my home.

   However, I have a plan…

   Shortly my high interest debt will be gone and I will have only mortgage and student loan debt. At this point I plan to pay very large extra principle payments on my 2nd mortgage, thus lowering the balance within just a few years.

   As soon as I have the balance low enough to refinance, I will refinance both mortgages into a shorter term single mortgage (most likely 15 years).

   Once that is done I will then pay double principle payments every month thus paying the mortgage off in half the time of the new term.

   Following this plan should allow me to have my home paid off within 10 years. That said, it is also written into the plan to have a fully funded emergency fund along with maxed out retirement plans prior to hitting the mortgages hard.

   In a nutshell…

   Year 1 – finish paying down high interest debt.
   Year 2 – max out retirement accounts using percentages gained from our debt elimination. And use the left over surplus to begin paying extra toward 2nd mortgage principle
   Year 3 – continue paying extra toward 2nd mortgage until I can refinance into a 15 year single mortgage (equity)
   Years 4-10.5 – pay double principle amounts every month allowing me to pay off mortgage in just 7.5 years

   My goal is 10 years, so I plan on making that 6 months up somewhere along the way.

   Comment by Matt Jabs — Jun 3rd 2009 @ 9:34 am

2. I am guilty of the haphazard approach, but it worked (past tense!) for me. In 2001 I bought my current house with a 30 year loan and 20% down payment. Pretty standard. Most annual bonuses and my minuscule “second job” income from that point on went to principal, as well as a nice special company cash award. In 2003 I refinanced to a 15 year mortgage, and reduced my principal by a nice sum by deciding I would not buy a car at that time. Fast forward to January 2009 and, voila, mortgage paid off with one last bonus check.

   It wasn’t a pretty process, or even very scientific, but it worked for us, and I guess what works is what works. As an extra note, using this approach, as the post mentions, put no strain on us…it was all “extra” money other than the monthly payments themselves. And while it is arguable about whether pre-paying a mortgage is a good idea, we did not lose that pre-paid money in the financial market’s implosion, the monthly financial freedom since January is great, and it just feels good.

   Comment by Daron — Jun 3rd 2009 @ 10:02 am

3. Daron, that’s a great story. This just goes to show that there is no single “right” way. Just do whatever works for you.

   Comment by Nickel — Jun 3rd 2009 @ 10:06 am

4. My effective Mortgage rate is 2.71%. I will never prepay that loan unless I sell, retire early (in 20 years), or loose the tax deduction it gives me.

   Plus the payment is less than 10% our our income, I barely even notice it’s there.

   Comment by Ben — Jun 3rd 2009 @ 10:22 am

5. It’s worth noting that making bi-weekly mortgage payments is exactly the same thing as making 1 extra monthly payment at the end of the year.

   The net principal reduction after 365 days is the same with 26 bi-weekly payments or 13 “monthly” payments.

   What this means for me…
   I make bi-weekly transfers from my checking to my savings account. My mortgage payment is withdrawn monthly from my saving account. (mortgage is with the same bank) Then at the end of each year, I will make a one time principal payment with the surplus that has built up from the bi-weekly transfers.

   This will avoid any fees for bi-weekly payment programs and allow automation on a bi-weekly basis.

   Comment by LRG — Jun 3rd 2009 @ 10:26 am

6. You’ve written an excellent piece here.

   I’m a huge fan of paying off the mortgage early – in fact I did it!

   What was most helpful to me was to budget very carefully and throw as much cash as I could towards the debt.

   Now I’m mortgage free and loving it!

   Comment by Wealth Pilgrim — Jun 3rd 2009 @ 11:04 am

7. If you have the discipline to prepay, it doesn’t always make sense to refinance.

   I’ve been prepaying from the start and am on target to pay the dang thing off in 6 more years, essentially paying off a 30-year loan in 20 years. I’m now paying an extra $425 monthly, but with a $64,000 balance, i don’t think it makes sense for me to pay the not inconsiderable refinance costs when i can achieve the same thing by prepaying and most importantly, retain the flexibility to pull back on the prepayments if, god forbid, i lost my job and were laid off. I could restart prepayments whenever i got a new job.

   Comment by dawn — Jun 3rd 2009 @ 11:34 am

8. All are good ideas, especially the “just do something” idea! I paid off two home mortgages (bought one house, paid it off in 10 years, wife fell in love with a larger home, moved, paid the new house off in 7 years) by running out an amoritization schedule and paying extra principal every month. The first years it is easy to do because most of your house payment is interest so it lops off many months at a time. After a while, I used savings to lump-sum pay out the rest of the mortgage. (Yes, you have to save money in bank accounts, mutual funds, etc. too for liquidity. This notion of either put all of your extra cash to the mortgage or none is BS. You can split the difference and do both.) An old book called “The Banker’s Secret” gave me the original idea. The author suggests nickle and diming away your mortgage. Belive me, not having to pay on a mortgage every month has given me maximum flexibility in saving for retirement, changing to a lower paying and less stressful job, and freeing up cash for travel.

   Comment by Dave — Jun 3rd 2009 @ 11:41 am

9. @Dawn: regarding refinancing, I will do so if the costs together with a better rate warrant I do so, otherwise I will not. This is of course going to be different on each individual basis.

   Comment by Matt Jabs — Jun 3rd 2009 @ 11:57 am

10. I like the haphazard approach. If you get bonuses and have a little side business, it can really knock down that principle balance quickly.

    I DO plan to refinance though, but will probably do it with a very short term loan (10 – 15 years). We’ve lived in our current home for 5 years and I have 2 more before the rate resets.

    Comment by Ron — Jun 3rd 2009 @ 12:19 pm

11. The first few years we owned our house, we had roomates, so we paid double the whole mortgage payment. It was really satisfying because, as Dave said, in the first few years every bit of principal you pay off is a *ton* of interest saved.

    Now it’s just us and we pay a little extra every month, basically just rounding up to the nice even number that’s in my budget. If we stuck with that it would turn our thirty year mortgage (now 7 years old) into a 18 year mortgage, just about.

    But we are right in the middle of a refinance for a shorter term at a lower rate. From the date that goes through, if we keep making the payment we make now, we’ll be done in about 8 years.

    It will also give us more flexibility; the required payment on the new mortgage is lower, so if something goes wrong our total overhead is lower.

    Ultimately we’d like to sell this big old house and buy or build a small, energy-efficient house – but the market hasn’t been cooperating with us right now. We’re actually looking at self-financing a teardown or an empty lot right now while they’re ridiculously cheap (there’s a very small house in our neighborhood listing at $3000 right now) and sitting on it until we can sell our house for what we paid for it or higher.

    Comment by Rosa — Jun 3rd 2009 @ 12:49 pm

12. I do a combination of overpay and haphazard – I never put less than $100 of overpayment towards the mortgage (~10% give or take) and usually put $200-$400 extra (sometimes up to $1000-$1200) depending upon the state of our bank account and any windfalls or how I happen to be feeling as I pay the mortgage that month.

    Got rid of our 2nd mortgage in ~3 years, and we are currently in the process of refinancing to a much lower rate right now that will really allow us to accelerate our principal payments.

    Comment by Blaine Moore — Jun 3rd 2009 @ 1:47 pm

13. Great thoughts. Just make sure your mortgage company will actually apply those to the mortgage and not “bank” those funds for the next months payment. That is one of the sneaky things some mortgage companies will do.

    Comment by Chris — Jun 3rd 2009 @ 2:23 pm

14. Chris: I’ve always heard that you should make the extra payments with a separate check, and specify that it should go toward principal. While that’s a good strategy (just to be on the safe side), I’ve always made a single payment that includes the overage, and I’ve never had a problem with a lender mis-applying them. Maybe I’m just lucky.

    Comment by Nickel — Jun 3rd 2009 @ 2:25 pm

15. I like the method of keeping a 30 year mortgage and paying extra towards the principal every month.

    If you go to 15 year then you’re locked into paying larger payments. But with a 30 year you have the option of making extra payments as much as you want or can afford, but if you lose your job or whatever you can scale back to the smaller standard payment. So the 30 year mortgage with extra payments is the best flexibility.

    Comment by Jim — Jun 3rd 2009 @ 2:59 pm

16. Nice post! I’m always an advocate of financing for a lower term whenever possible. I’m of the opinion that when I buy a house, if the payment is too high at 15 years, I’ve got too much house and can’t afford it. That’s a personal choice and by no means something I expect of others. I just don’t want to be indentured to a house payment for 30 years. The interest I’d be paying on that loan would probably cause me some anxiety. So, my plan would be to do the 15 years and then I’d probably do what LRG posted above – move biweekly payments to a savings account and then pay one payment at the end of the year. Of course, if I sell a script and make it big with my writing career I’ll just pay cash ahead of time…but, I’ve got the 15 year plan as a back-up!

    Comment by Kristy @ Master Your Card — Jun 3rd 2009 @ 3:40 pm

17. I like the haphazard approach because at least its better than doing nothing and builds a sense of momentum in paying off the mortgage. Its a good thing it has also worked for others.

    Comment by Manshu — Jun 3rd 2009 @ 6:19 pm

18. Similar to your “Pay next month’s principal this month”, I’ve used the “Pay double the interest this month” approach (not sure if it’s been published). The side effects are that you are keenly aware of how much money you are wasting via interest payments, and also the monthly payments will be decreasing (since the interest portion will decrease rapidly).

    However, since January — I’ve abandoned this approach to hoard cash into a greater than 6 months emergency fund…

    Comment by LOL — Jun 3rd 2009 @ 8:31 pm

19. My husband and I have also used a variety of techniques. We started by adding a little extra to the principal each month, then we refinanced to a shorter term and recently started paying bi-weekly. We hope to have two mortgages for two separate homes finished off in 13 years max!

    Comment by One Frugal Girl — Jun 3rd 2009 @ 10:17 pm

20. Here’s my pre-payment trick with a safety net in this economy. I send 1/12th of one extra annual payment each month to my ING account where it sits earning 1.5% interest. If I have a job loss or something, I can tap my emergency fund + the extra house payments.

    No job loss or catastrophic event comes along…I send it to the mortgage company. That way, I don’t lose the flexibility in the meantime and it still means I make 1 extra payment each year.

    Comment by T in DC — Jun 3rd 2009 @ 11:52 pm

21. Interesting post.

    I have always rounded payments up to the nearest $50 or $100– speeds payoff at a comfortable rate.

    Comment by DDFD at DivorcedDadFrugalDad — Jun 4th 2009 @ 8:49 am

22. @Jim #15 – switching to a 15 year mortgage is going to actually lower our required payments, because interest rates are so much lower now than when we first got the house and the 15 year loans have lower rates again.

    Comment by Rosa — Jun 4th 2009 @ 10:59 am

23. Here is another approach for some people. Some mortgage companies will allow you to do a “recast” of your amortization for a fee. My mortgage company, US Bank, will allow you to make a payment of 10% of the remaining balance and then adjust your monthly payments to reflect the lower balance against the remaining time left on the note. It costs a flat $250. Might not be too practical with a 300,000 balance, but with a balance under 100k, it would seem a reasonable thing to do.

    I was hoping to do this to lower my payment, and then keep paying the same thing. I also overpay a fixed amount (around 15%) on the same check, and it is always applied to principal.

    Comment by Swamproot — Jun 4th 2009 @ 6:01 pm

24. Swamproot, I’ve had car notes that would do similar to that. If you pay extra, then the balance due the next month would be less than normal (extra payments are “pre-paying” the next months bill). Interest-wise, it is a wash (you are not paying more interest if the note is amortized this way and you pay it off early).

    I wish mortgages were this same way as well — then there would be less “risk” in paying off a mortgage early. If you lose your job, your money is not “locked-up” in the house: you will have a few months (or years) of $0 non-payments to make until you ‘catch-up’ and then the normal payment schedule resumes.

    This would eliminate a large barrier (at least for me) for paying off a mortgage early.

    Unless mortgages change, it is strongly advised that you have 6-12 months in liquidity (cash or similar emergency fund) _before_ paying extra on a mortgage — depending on whether you have a two-earner (6 months) or single-earner (12 months) household. This also means that people who are buying a new home for the first time: you should also have 6-12 months in CASH on top of the down-payment you are making for the new home purchase.

    Comment by LOL — Jun 5th 2009 @ 11:18 am

25. What about making two half-payments a month (different from one payment every two weeks)? Instead of making a single monthly payment on the 31st of each month of, say, $1000, you make a $500 payment on the 15th and a $500 payment on the 31st?

    You’re still paying $12,000 per year, but the bank sees half of that amount 15 days early, month after month.

    Does this work? It looks like it would shorten the loan considerably and reduce total interest. Or is the logic incorrect?

    Comment by Seth — Jun 6th 2009 @ 10:27 am

26. Seth, that’s the biweekly payment plan. It adds up to an extra payment a year. I am not sure if it makes for less interest costs, because of the way mortgage interest is done on a fixed-rate fixed-payment mortgage – i bet it depends on the bank.

    Our mortgage servicer offers the biweekly payment system if you set them up to draw directly from your bank account, and they charge a fee for that, which made me leery of it. I’m not sure what the bank would do if you just sent in the biweekly payments yourself – probably someone here does that and knows how it works.

    In the past our current mortgage servicer has done stuff like double-billed us for the same month because we paid before some arbitrary date in the month, and randomly decided that for overpayment we should be assessed a late fee, so I don’t do auto-deduct.

    Comment by Rosa — Jun 6th 2009 @ 7:18 pm

27. Countrywide (now BofA) applies extra monies to past due, escrow shortages, then principle in that order.

    When I first started I was using the haphazard method. When I refinanced to a lower fixed 30year mortgage I just kept making the same payment that I had been paying. Now that all my other debts are paid I pay at least $1k to the principle each month. My target date for having the house paid off is May 2012.

    Comment by JerryB — Jun 7th 2009 @ 12:42 am

28. Rosa,

    I’m not asking about the biweekly plan. I’m asking about paying semi-monthly, 24 (not 26) half-payments/year.

    Details in my original post, #25.

    Can anyone answer?

    Comment by Seth — Jun 7th 2009 @ 1:12 am

29. I generally use the “overpay a fixed amount” method. I also increase the amount I pay every year to simulate the normal rent increases I would face anyway. Over the years a 3-5% annual “rent” increase really adds up and helps pay down the mortgage more quickly. Of course this would only work if your salary is increasing at a similar rate.

    Comment by Eden — Jun 7th 2009 @ 1:21 pm

30. Seth #28 – No, that won’t result in any interest savings. Interest on your mortgage is calculated on a daily basis only in the event of payoff. Whatever your outstanding principal amount is after your payment is made, that is the amount the next month’s interest is based on. (Notice that your interest due does not vary based on how many days are in a month. If interest was calculated on a daily basis, you would notice that you owed a bit more interest on April 1 than you had on March 1, but the opposite is true.) It was strategic thinking on your part, though. If you were to send in $500 on the 15th, I suspect your lender would simply code it to “suspense” pending the receipt of the other $500, then apply the $1000 as usual.

    Eden #29- That is what I do, too. I have a budgeted amount which I pay, and raise it a bit each time I have a raise or eliminate a monthly expenditure.

    Comment by Petunia — Jun 7th 2009 @ 3:17 pm

31. Like DDFD, I read advice just before I closed on my house a week ago that rounding up was the best way to go. If you can’t round up to the nearest $100, go for $50, or even $10. Since rounding up to the nearest 10 meant adding 73 cents, I’ve decided to round up $10.73, hoping that when I get the new budget figured out (with utilities and stuff), I can keep adding $10 until I’m rounding up to the next $100. This is my goal!

    Comment by thisisbeth — Jun 7th 2009 @ 8:31 pm

32. We used a combination of paying the next month’s principal and the haphazard approach when we came into extra money. I say whatever method that you use to pay it off early is a good one. Find what works for you.

    Comment by Corporate Barbarian — Jun 8th 2009 @ 12:52 pm

33. I’ll second the just-do-something approach. I went in, about five years ago, with a goal to pay off my mortgage using whatever means were available. If I could only pay $200 extra per month, I did it. A couple of months I paid $2,000 extra due to some windfalls. Like others said, it wasn’t pretty but it worked: I paid my mortgage off last summer.

    One thing I found was that even small payments help. If all I could afford to overpay was $10 a month, that would have still been enough to pay my mortgage off a full month early. So every 10 bucks you can scrape up helps. Every $100 you can scrape up helps more.

    Comment by Dave Farquhar — Jun 8th 2009 @ 1:55 pm

34. Unless you have a strong emergancy account established, making extra mortgage payments can be dangerous. If you want to pay off your mortgage in 6 years, figure out what it would take each month then put that amount into an interest bearing account every month for the next six years, THEN pay the mortgage off with one big payment! This way you pay yourself first, maintaining control and access to your money for as long as possible. Life Happens in good ways and bad, at least you will always have choices by maintaining access to your money. And you will be EARNING interest for the next six years instead of SAVING interest (there’s a big difference).

    Comment by Bryan — Jun 9th 2009 @ 10:47 am

35. Bryan@34

    While I agree that a big emergency fund is important to have before making significant extra payments, saving those payments over the intended payoff period is very expensive.

    E.g. a $350,000 balance at 6%, $800 extra per month, 1% earned in a savings account. Back of the envelope, this would cost me nearly $100,000 in extra interest if I were to bank the $800 for ten years and pay off a lump sum. Yes, having access to the cash would be nice, but it doesn’t seem worth it.

    Yes, these numbers are imprecise and you could find other numbers that make more of a case for saving the money, but you would still miss out on significant interest savings.

    Comment by Eden — Jun 9th 2009 @ 12:19 pm

36. Eden – First of all, I would hope that a 1% return is fairly short term, so we can’t use today’s savings returns for long term comparisons. Secondly, Many of the folks who have lost their homes to foreclosure in recent years were not victims of the “mortgage crisis”, they had unanticipated financial circumstances that they did not have a big emergancy fund to cover themselves while fixing the circumstance. That, if anything, is a major reason to not pay down additional principal until one has liquidity (do you know anyone who lost their job lately?). The $800 monthly principal contribution is lost until you sell or refinance the house. While the $800 monthly investment (regardless of the rate of return) is always accessible in the case of an emergancy or even an opportunity. Liquidity is key and the equity in a house is one of the worst places to keep your money, but that’s a completely different discussion. The bottom line is if you have 6 to 12 months of living expenses in a safe, accessible place, you can handle practically any financial set-back a lot better than having no extra money to continue paying for the mortgage you worked so hard to pay down.

    Comment by Bryan — Jun 9th 2009 @ 2:53 pm

37. Bryan,

    I don’t think anyone is arguing for not having an emergency fund.

    And I agree that the vast majority of those who lost their homes are not victims of the “mortgage crisis”. In fact, I believe that the vast majority are victims of their own poor planning.

    Comment by Petunia — Jun 9th 2009 @ 4:48 pm

38. Petunia -

    In comment 35, Eden wrote:

    “Yes, having access to the cash would be nice, but it doesn’t seem worth it.”

    My response was to show why it is worth it.

    As to your second point, I totally agree. This is the era of instant gratification but living as if the the money rules and practices are the same as those of our parents and grandparents. The rules have dramatically changed and not too many bothered to pay attention.
    If people do not start planning properly, what we just went through will be nothing compared to what lies ahead. I don’t like to be negative, but reality is going to kick many people quite hard when it’s too late for them to do anything about it. and the results will be people being under-insured, unable to afford health care, no or insufficient retirement funds, and outliving their retirement funds. It’ going to be a real Bang for the Boomers. I hope they at least take better care of their health because I think they’ll have to work for many more years than their parents/ grandparents.

    Comment by Bryan — Jun 9th 2009 @ 11:40 pm

39. Bryan -

    I think we are more in agreement than not.

    Basically, have enough cash or equivalents (fuel, ammo, alcohol could end up as cash equivalents if things get bad enough – forget gold and other metals) to cover your emergency situations.

    Beyond that (what, $50k max), I think dividing extra savings up between looking for great deals due to deflation and getting a guaranteed 6% or so return by paying off a mortgage early is a great way to go.

    Comment by Eden — Jun 10th 2009 @ 3:03 am

40. This whole thread is outstanding. So many people are in trouble on their houses/mortgages because instead of paying the loan down over time, they kept adding to it to take out the equity. A gradual paydown would have eliminated the entire mortgage mess.

    Going forward, anyone with a mortgage, or planning on having one, needs a viable plan to pay it off early. Not only will this build equity, but it will also open up more options in the future. How important is that???

    Comment by Kevin@OutOfYourRut — Jun 10th 2009 @ 3:37 pm

41. my mortmage balance is $89.000 and i am thinking to pay it off total, but i am not shure if this is the smart thing to do, my monthly payment is 667,70 do you have any sugestion on this and if so, what would be a better way to make profit out of the $89.000 as of today is just in a money market acct.

    Comment by gloria — Jun 25th 2009 @ 6:37 pm

42. Gloria, you’re looking for a yes or no answer of course, but the only answer that can be given without knowing anything about you or your circumstances is MAYBE. There are about a dozen questions that need to be answered before anyone can provide any reasonable guidance on your situation.

    You probably need to discuss this with an attorney, accountant or other trusted financial advisor, preferrably one who knows you and your situation fairly well, and doesn’t stand to benefit from your decision.

    Age, employment and income, assets, assets after loan payoff, future intentions, family situation, future cash needs, non-mortgage debt and other questions all need to be addressed before anyone can give a yea or nay opinion on the payoff, and you certainly don’t want to be sharing any of that on the web. Good luck!

    Comment by Kevin@OutOfYourRut — Jun 25th 2009 @ 7:28 pm

43. Great answer Kevin! You are absolutely right.
    Gloria – the correct answer to your inquiry can only be given after someone you trust reviews your overall financial situation. If anyone tries to give you advice on what to do without thoroughly understanding the above, don’t take their advice, it’s as good as one of those Eight balls that you shake and turn over. Good Luck !

    Comment by Bryan — Jun 25th 2009 @ 8:55 pm

44. Bryan, your answer at post #34 was equally brilliant. Liquidity is an important consideration when making extra payments on a mortgage. Once paid, the cash won’t be available for other purposes, especially now that mortgage money is harder to get than in the recent past.

    Comment by Kevin@OutOfYourRut — Jun 25th 2009 @ 9:09 pm

45. “Cash is King” and Liquidity is Empowerment!!!
    I can’t say it enough….. if people managed their finances to build a proper level of liquidity, I would bet that around 70% of the foreclosures that happened over the past year and a half, would have been avoided.

    Comment by Bryan — Jun 25th 2009 @ 11:45 pm

46. does anyone out there have any experience working with any of the websites promising that you can pay off your mortgage in 8-12 years and it not involve any bi-weekly or extra annual payments? jj san

    Comment by jj san — Aug 9th 2009 @ 11:28 pm

47. jj san – You are probably hearing about one of the Money Merge Account type products. They set you up with a Line of credit from which your income is deposited to and all your bills are paid from. They also provide you with computer software to manage and monitor it. From what I’ve seen tey do work, owever you need alot of discipline to work it successfully. Some people swear by them and some hate them. I suggest you research it, look at some of the video presentations they offer and see if it is for you. The more opinions you get on this one, the more confused you will get. You have to decide based on how it fits you. By the way, many of these companies charge for the software, I’ve heard $3,000 +, but not sure. And if you can cut 22 years off your mortgage, it’s well worth it. Good Luck!

    Comment by Bryan — Aug 10th 2009 @ 6:31 pm

48. I have a 40 year mortgage with a variable rate of .65% below prime. I went for this last year due to the fact that my payments were low. Most people would spend the saving, but I put it against the mortgage. Putting an extra $250 against the principle. I did this for 2 reasons. One is that if I lost my job I could stop the extra $250 and get my life back online. And the other due to the fact that I know the amount of $250 is hitting the principle. I watch my finances and I am very happy I did it this way.

    Comment by Mark — Aug 17th 2009 @ 7:30 pm

49. Mark – Very nice!! Do you have sufficient liquid funds to cover you inthe case you lose your job? If so, you’re in great shape. Otherwise you might consider putting the $250 towards that. In 2 years, even if you stuck it in the mattress, you’d have $6,000 that you cannot access if you used it for principal paydown.

    Comment by Bryan — Aug 17th 2009 @ 8:03 pm

50. We think we are getting cheated by Cit Financial on our mortgage. It said on the back of our statement that any amount made that was over the amount of the monthly payment would go to principal….we have been paying a little extra each month…nothing went to principal. When we asked about it they told us they “don’t work it that way”….anyone have a problem like this? only one time did our principal drop (we paid early) and they told us we can’t pay payments earlier than every 30 days. WHAT?

    Comment by Linda — Aug 21st 2009 @ 1:45 pm

51. Linda @ #50,

    Are you specifying that the extra funds are for principal reduction? If not, you should start.

    Call Citi Financial and tell them you intended those extra monies to be applied to your principal balance and ask nicely to have this corrected. Don’t take “no” for an answer.

    Comment by Petunia — Aug 21st 2009 @ 3:29 pm

52. My wife and I refied and since the orig lender messed up the escrow, we will now save little over 400 a month. We are paying what the old rate was and now that the kids are out of day care and private school to public we are using the additional 1k a month in a savings for 6 months and paying 3 at a time and should knock the 30 year to about 10 and still give us money to fall back on if needed. We should save about 160k in interest. lay low for 10 and enjoy the remaining 20. We got rid of all the unneeded things and work with what we need and adjust as we go. Stop paying others and pay yourself…

    Comment by Don — Aug 26th 2009 @ 1:22 am

53. Don – The $1,400 a month you are now saving will go alot further if you kept saving it every month and continue to EARN compounding interest for the next ten years, THEN pay off the mortgage. I dont know your specifics but you will probably have money left over after paying it this way. This would really be “paying yourself first”. As I’ve said it prior posts… “saving” interest is not the same as “earning” interest. Keep total control of your money. Every extra dollar you pay toward principal is lost forever (until you sell or refi). Unless you are liquid enough to cover your living expenses in the case of an unforseen financial setback, I urge you to truly pay yourself first. $1,400 a month can grow substantially…. let it grow for you, not your mortgage company.

    Comment by Bryan — Aug 26th 2009 @ 11:06 am

54. Bryan, you speak of paying off principal like its throwing money down a well, saying it “is lost forever”. But that isn’t the case, it removes the liability that the principal dollar represents. Unless the rate of return on the money you save is greater than the interest rate on your mortgage you couldn’t have more money left over. To earn better than mortgage interest rates of return, you would probably need to put the money you are saving into something illiquid or volatile, or else it would be a more obvious thing to do. Equity in your house is something you can tap if you need to and having it is like having insurance. Of course the same can be said about a big pile of cash. But by not paying it on principal, you ARE letting it grow for the mortgage company.

    Comment by Swamproot — Aug 26th 2009 @ 12:34 pm

55. Swamproot – It’s not about earning more than the interest you are paying. It’s about liquidity and having control of your money. There have been very detailed studies on saving vs. paying extra pricipal and saving always came out better. Equity is not always accessable, in fact it’s the worst place you can put your money. A recent example, aclient of an associate of mine bought a house 2 yers ago for $800,000. He put $400,000 down and took a $400,000 mortgage. The house was recently valued at $400,000. His hard earned down payment is GONE. If he put $160,000 down, and saved the difference, he would now have $240,000 in the bank. Sure, he’s upside down, but at least he’s liquid. Now what if he loses his job? He has no equity so there’s nothing to tap into… it’s GONE. In the second scenario at least he has money to survive and cover his costs while he finds another job or figures out his next step. AND if he was not upside down… he cannot tap into the equity because he doesnt qualify to BORROW IT BACK. Your way of thinking is the reason so many people have lost their homes to foreclosure in recent years. But It’s understandable because that’s the way we have been conditioned to think. The mortgage one selects and how they manage it will have far-reaching impact on their personal and financial well being. It really has to be worked into the overall financial strategy and not treated as a compartmentalized obligation. The rules have changed… we have to stop living by the money rules that our parents and grandparents lived by. It’s a totally different environment.

    Comment by Bryan — Aug 26th 2009 @ 1:04 pm

56. Bryan, MY way of thinking would be not to buy a house at the top of a bubble.

    But I think you are talking about two different issues. ONE of them is about having the liquidity to survive for several months if you lose your job. This is what the Ramseyites call the Fully Funded Emergency Fund. Don should absolutely save enough cash on hand to handle that contingency. I and I don’t think most people who advocate paying off your house early would argue against that point.

    But MY house hasn’t really gone down in value, in fact I’m pretty sure I could sell it for more. I can qualify for a HEL or HELOC if I need it. I can lose my job and my wife can still make the mortgage. In a few years, MY house will hopefully be paid off early, and I will no longer be mailing a substantial portion of my income off to never be seen again. I will at that point have a whole lot less to worry about, certainly less than the client of your associate. But I will concede that it is an issue that is individualized and there is no stock answer to IF you should pay your mortgage early.

    I don’t think the rules have changed. If you buy what you can afford, prepare for emergencies, save money, don’t spend more than you make, then you will still be OK. Just like granddaddy use to say.

    Comment by Swamproot — Aug 26th 2009 @ 2:29 pm

57. Bryan, I have also been thinking of that. Saving it till the 10 year mark and paying the remaining balance. I have looked around a little at diff options to save money and earn more interest than what my mortgage payment is. Even if I saved the money in my account and only earned a little interest, I’d still have a safety net for the unexpected and the diff will be minimal anyway. The emergency fund is an absolute must. We have gotten rid of almost all unnecessary frills. If we want to do something pay for that use instead of months where you don’t use it. I work with a couple folks that have cars, trucks and RV’s with grown kids back at home (whole other issue) but I see too many stretched too thin and set up for failure. As I explained this to the wife, we pay off in 10 and have 20 to continue to save at a higher rate or let her stay home or we continue and the way we are and be done in 30. We can be virtually debt free in 10 years and early 40’s by then or be like a lot of others here struggling and not being able to enjoy life at retirement. Thanks again Bryan for the info in all the posts, it got my rusty wheels spinning and thinking again.

    Comment by Don — Aug 27th 2009 @ 12:25 am

58. Swamproot – 1.)You hit it on the head! “it is an issue that is individualized and there is no stock answer to IF you should pay your mortgage early”. It is totally situational and too many factors should really be considered for an individual to decide if it is suitable for them. Thank you… that is the answer to this forum!
    2.) I really am not talking about 2 different things because they are interconnected, to compare paying off a mortgage in extra principal payments to saving and paying yourself, the liquidity factor is a big consideration ( house rich-cash poor).
    3.) A HELOC is a nice way to supliment your liquidity until you have it in cash, BUT… you are borrowing the extra payments you made to your principal and paying interest on it! If you want to send me a couple hundred bucks each month and not want to earn interest on it, I’ll take it, and when you need to access it, I’ll charge you interest and if you don’t pay that interest, I’ll own your house. Deal?
    4.) For the homeowners who use the mortgage interest tax deduction… every extra dollar paid toward principal permanantly wipes out a portion of Uncle Sam’s contribution. This is a factor many dont consider until it’s too late. I strongly advise consulting a CPA about a mortgage payoff strategy.
    5.) The rules have changed!! Granddaddy had a pension, he had no credit cards, he kept the same job and lived in the same house for 30 years, college costs were so reasonable, he paid cash, when he retired, he did not need a tax write-off because his pension and social security covered everything. Paying off the mortgage was definately the right thing to do 20 -30 years ago. And he got a gold watch to boot : )

    Comment by Bryan — Aug 27th 2009 @ 12:03 pm

59. Don -
    As Swamproot said, it’s very situational. In my opinion, You are thinking along the right lines. If you would like, I can help you figure out which is the best approach. I use a program that will do a side by side comparison of using principal reduction vs. asset accumulation to pay off a mortgage, and all the interest costs and savings over specific periods of time. It will certainly help you and your wife make an informed decision and pursue your chosen plan with confidence. Drop me an email if you would like me to assist. I am a Mortgage, Liability And Cash Flow Advisor by trade. Because you are a “fivecentnickel”er, I will offer my service at no charge. bvail@icghome.com

    Comment by Bryan — Aug 27th 2009 @ 12:35 pm

60. Hello Nickel;
    Since ten yeras ago, I have a mortgage at 7.38% at 30 years term. On every month, I am sending and extra money for eralier pay off. So, I have reduced the in ten years the length. I have always wondering wihich will be my final interest rate when I finished to my mortgage. Can you please help to calculate it? Thank you.

    Comment by Omar — Aug 29th 2009 @ 12:07 pm

61. Bryan, the program you are speaking of will help out in getting a better ball park figure. Thank you for the information. I will send you an email.

    Comment by Don — Aug 30th 2009 @ 12:34 am

62. A very simple approach, that shaves atleast 10 years off your mortgage.

    Appropriate tax refund every year towards an extra mortgage payment.
    eg. 150,000 over 30yrs @ 5.5 with 20% down

    say an additional 1200 in from yearly tax refund will shave atleat 10 yrs.

    how about that.

    Comment by Jovon — Sep 20th 2009 @ 11:36 am

63. From Bryan:
    “4.) For the homeowners who use the mortgage interest tax deduction– every extra dollar paid toward principal permanantly wipes out a portion of Uncle Sam’s contribution. This is a factor many dont consider until it’s too late. I strongly advise consulting a CPA about a mortgage payoff strategy.”

    Also make sure to take account of capital gains taxes on investing money and then using it to pay off a house in a lump sum. No one seems to argue against investing and making money because one pays capital gains tax on those earnings. Yet people turn around and argue to not pay interest on a loan off early because of a tax deduction. The tax deduction argument is to pay out $1 to save $0.25 (or $0.33).

    Comment by Perk — Oct 13th 2009 @ 4:21 am

64. Question: Why would you gradually give your money to someone else to earn interest on? Not only removing your opportunity to invest, CD, or save it and earn the interest for yourself, but also the security of having accessibility to liquid cash?
    If you know you want to pay your mortgage off in x amount of years, you should “overpay your principle” in a high yielding savings account, or ladder a CD (put a certain amount of money into a CD every 6 months-a year, for up until you plan to pay off the mortgage all at once). Of course this only works if you have the discipline to not touch the money. I can’t imagine though, WILLINGLY giving money that I won’t be able to control until I get the house sold to someone else to invest and make money off of. Why would you do that? You’re essentially giving away profit and losing money to have someone babysit your money, without paying you interest.

    Comment by LMoot — Oct 13th 2009 @ 7:30 am

65. “”"”This whole thread is outstanding. So many people are in trouble on their houses/mortgages because instead of paying the loan down over time, they kept adding to it to take out the equity. A gradual paydown would have eliminated the entire mortgage mess.

    Going forward, anyone with a mortgage, or planning on having one, needs a viable plan to pay it off early. Not only will this build equity, but it will also open up more options in the future. How important is that??? – KEVIN”"”"”

    The future does not always supercede the NOW. Not paying down the mortgage is NOT why people are in trouble. Not having adequate liquid savings is why people in trouble. My current mortgage is $600/month. I could pay $1000/month, every month. Then, I get fired. I have less savings than I would have if I just pocketed the extra $400 a month, and do you think that because I’ve been “paying down my mortgage” that my payments will decrease, or that they will forgive me if I’m late a month or two? Paying down the mortgage does NOTHING to secure the present (and what good is the future of your asset if you lose that asset). Like I said, I could be $400 over my mortgage until the last payment, and that last payment will STILL be the original amount of $600. Paying down the mortgage does NOTHING for my current financial situation (and less for my future financial situation) than merely saving the money and paying it off at once.

    Comment by LMoot — Oct 13th 2009 @ 7:38 am

66. LMoot – thank you, I couldnt have said it better (believe me, I’ve been trying). Equity in a house is one of the highest risk places to park your money, and one of the least prudent. It has no rate of return, it is not safe and it’s not liquid. It was a good strategy 30 years ago, not today. As I’ve said before “Liquidity is Key”.

    Perk – the point is to have access and control of your (home equity) money, not to get rich by investing it. And to be in a position to be able to pay off your mortgage IF you choose to when YOUR assets equal or surpass your debt. I strongly urge homeowners to involve their Tax and Financial Advisors when structuring such a strategy. I would feel much better 15 years from now knowing that I can pay my mortgage off if I want to, than knowing I have my mortgage paid off and not much in liquid assets. Also, you will be suprised at how many people give extra money to their lender every month with the goal of being mortgage-free by the time they retire only to learn that the tax on their 401k income will have to be offset to maintain their pre-retirement lifestyle, so they end up taking another mortgage (if they qualify) to get their money back out of the house.

    Comment by Bryan — Oct 13th 2009 @ 9:42 am

67. Bryan and LMoot,

    With my well-funded emergency fund in place, I am diverting extra funds to paying down my mortgage debt in 4 years. After those 4 years (1.5 to go), my same emergency fund will be sufficient for covering three times the amount of unemployment than it does now.

    By paying down my mortgage debt every month, I end up paying much less interest (debt) to the bank than if I paid it off in a lump sump even 1.5 years from now and certainly much less than when I began paying off that debt in earnest 2.5 years ago. It’s actually astounding to realize how much interest (debt) I avoid paying the bank by paying extra each month versus paying in a lump sum at the end. That amount far outweighs any amount over the standard tax deduction.

    With a well-funded emergency fund, why pay down credit card debt? Why pay down car loan debt? Why pay down personal debt? Why pay down house debt? Because when debt is $0, then my emergency fund is worth more months of coverage and my obligations are easier to meet.

    I know you are urging people to see Tax and Financial Advisors. My sister is one of those and she has paid off her house. In addition, people need to beware of financial advisors who, instead of charging a flat fee, give “free” advice and make money off of the investments instruments they steer customers to.

    Comment by Perk — Oct 13th 2009 @ 8:40 pm

68. I have a $400,000 30 year mortgage. I put 25% down and have enough cash saved up for a 7 month emergency fund. My remaining bablance on the mortgage is about $150,000. I inherteted about $100,000 that I had not expected to inherit. I plan on using a “laddering” method with 4 seperate CD’s. (6 month at 1.54, 1 year at 1.99, two year at 2.94 and 4 year at 3.05 percent. At the end of the four years I will take the full amount and apply it to my mortgage. I plan on paying extra each month on my mortgage. So essentially I wam planning on paying my mortage off in 8 years.

    Comment by joe — Nov 13th 2009 @ 5:51 pm

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