A new series, aimed at achieving financial stability with rather simple steps. The first is aimed at one of the larger monthly costs for most people, putting a roof over your head. A lot of people at some point buy a house and get a mortgage. A long road of monthly payments lies ahead, there is however a easy way in getting the mortgage paid off a little faster, or a lot faster.
It only takes a periodic extra payment and persistence. Most mortgage lenders allow an extra amount of money being paid off per calendar year , or unlimited in some cases. Let’s look at an example, we start out without any extra payments.
Let’s take a few easy numbers, say I buy a house of 200000 , and get a mortgage for the same amount , 30 years until the mortgage ends and an interest rate of 3%, fixed at 30 years. There are variations with fixed interest running for 1, 7, 10, 20 years. But I keep it simple. So with these metrics the monthly payments will be around:
| Mortgage | 200000 |
| Interest | 3% |
| Monthly interest | 500 |
| Monthly repayment | 555,55 |
| Total monthly | 1055,55 |
So this is the example for the first year, depending on the type of mortgage the numbers can vary a bit, but it’s the about the principle, not so much the exact calculations of the numbers.
So if you pay an extra 100 dollar a month, each month in the first year this will lead to the following :
Your outstanding debt will be 100 less , divided by the remaining months left it will lead to a slightly lower monthly repayment. Combined with the lesser amount in interest payment you will save a small sum, around 0,52 cents for the first month.
As you can see , because of the monthly payments the mortgage costs gets recalculated each month, leading to a slightly larger decrease in the amount of interest you pay. Now a little trick, the amount you save in the first month you add up too the extra payment in the next month, so instead of 100 you will pay off 100,52 , then the recalculation will be a bit more and you will add it up again for the next month. And so on. Creating a snowball effect on the monthly payments while not having to shell out extra money. This is the power of compounding , even if it’s debt we are talking about.
So a set of very simple steps will decrease your mortgage debt while not increasing your monthly payments too much, and at the same time more stable in the finance department. It’s just a matter of getting started and hanging on.