As a followup to my earlier note about refinancing our mortgage, I wanted to point out an interesting way of looking at things…
In the comments to that post, Laura brought up the concept of the mortgage “crossover point, ” which is the point at which you are paying more toward principal than toward mortgage interest.
In looking at the amortization table for our original and new mortgage, I realized that this is a very powerful concept. Here’s a breakdown:
Under the terms of our old mortgage, and assuming no pre-payments, it would’ve taken 231 months, or 19.25 years, to reach the mortgage crossover point. Given that we were 21 months into our mortgage, that means it would be another 17.5 years before getting there.
Of course, we were were overpaying our mortgage every month, so we would’ve reached the crossover point much sooner. Those payments notwithstanding, however, we were still looking at a relatively long time horizon before our money was working more for us than for the bank.
What about the new mortgage? As it turns out, it will take just over 10 months to reach the mortgage crossover point. So, ignoring the possibility of mortgage pre-payments, we’ll reach the crossover point in January of 2009. Not bad at all.