Only a personal finance blogger would react the way I did today when I opened the payment booklet from my mortgage company and saw that our mortgage payment had gone down to $508.85 from $534.02. I whooped and said, “Finally! I’m catching a break! This extra is going straight to the principal!” It seems like all around me our bills are going up, as they tend to do, and this made me very happy. I usually receive a notification letter in the mail though, and since I have not yet seen that I decided to call my mortgage company. I learned that our taxes have decreased, and in addition to the payment going down, we are going to receive an escrow refund of $332.42. Double whoop! That $332.42 is going straight back to the principal, too! Sure, I could add it to my 50th birthday fund, or spend it on something else, but I figure it was paid to the mortgage originally, let’s just send it back there. Awesome.
Here are the details:
We live in a Cavco Manufactured home which is 27 years old. It is a 3 bedroom, 2 bath home on 3.5 acres of desert. Our first payment was due on August 1st, 2002 and our 30 year mortgage loan was $53,000.
I downloaded a copy of one of my favorite fun Excel spreadsheet templates Loan Amortization Schedule from Vertex 42 so that I could see for myself how this is going to affect our mortgage terms.
To use this template, you simply enter the loan amount, annual interest rate, term of loan in years, the first payment date, payment frequency, compound period and payment type. As you fill in these cells, the summary to the right will automatically update, as will the amortization schedule below.
In the image I’ve included, you can see the beginning of our schedule, with payments 1 through 5, then I’ve snipped for brevity and you can see where we are currently, in 2012. No additional payments have been made up to this point. But with the one payment of $332.42 plus five payments of $25, we will shave off FIVE MONTHS worth of payments.
If we continue to pay an additional $25 and our payment remains the same, we will shave off 34 months from the life of the mortgage – that’s almost three years! Of course the plan has always been to pay off the stinking credit card debt, then tackle the mortgage, but as you know if you have read Out of Debt Again through the years life sometimes isn’t that straight forward. I am just going to take this opportunity and work a little on lowering our mortgage debt.
I also asked the mortgage company about how I should make the payment to principle, should I write out two checks, I wondered? But she told me that anything extra will go toward the principle.
In the image below, note the summary section to see how much our Estimated Interest Savings will be. By making the payment of $332.42, and five payments of $25 each, we will save an estimated $1501.42 in interest, and wipe out five payments.
By continuing to make just a $25 additional payment every month from now on out, we could potentially save $7306.12 and take 34 payments off the mortgage.
Have you ever used Vertex42’s templates? They are free for personal use and so helpful! And if you don’t own Microsoft Office, you can use the free version Open Office.
Some posts of interest in the blogosphere:
- Money Beagle explains how his accountant handled his closing costs for his refinancing in Why I’m Glad I Have Someone Else Do Our Taxes
- KrantCents discusses his thoughts about money in Money is the Answer
- Alice at Don’t Debt tells us why she Can’t Be Trusted
- Funny About Money is itching to spend some money in I Wanna Spend!
- Melete at the Adjunctorium shares How to Deal with an Abusive Online Student
- Forest at Frugal Zeitgeist has a new series where he is focusing on Reader’s Businesses