After flirting with the idea of moving last fall, we decided to stay put in our home. So we just refinanced into a 15-year, fixed-rate loan. We had 22 years left on our 30-year mortgage, so we shaved off about seven years for an interest savings of $75,000 over the life of the loan. Our interest rate dropped from 5.125 percent to 4.25 percent. We didn’t take out any cash. We like the idea of being entirely debt-free, including no mortgage, around the time our kids finish college.
Our new payment is a little bit higher, of course, because the length of the loan is shorter. But I’m thinking about accelerating the mortgage by rounding up the payment to an even number. I feel like it’s a fresh beginning with a new bank, and since I have to write a bigger monthly check anyway, why not train my brain to think of the payment as a nice round number right from the start?
For example, let’s say you took out a 15-year, fixed-rate loan for $175,000 at 4.25 percent interest. Your monthly payment would be $1316.49. Now let’s say you round your payment up to $1,400 a month — an extra $83.51, or a little less than $3 a day. You would be finished with the loan almost a year early and save $5,442 in interest. Check out Bankrate’s mortgage calculator to see how much you would save by rounding up your mortgage payment.
You could apply the same principle to a credit card. If your minimum payment is an odd number, say $41.26, round it up to at least $50. Obviously you want to pay down high-interest debt as fast as possible. But if you’re struggling and feel you can only make the minimum, use the rounding up trick to reduce the debt. Every little bit helps.
Some people think paying off a mortgage early is a bad idea with the prices of homes continuing to fall. U.S. home prices fell for the seventh straight month in January in 19 of the 20 cities tracked by the S&P/Case-Shiller index, according to a report earlier this week. It may indeed be a bad idea, depending on where you live and how soon you plan to move. Our home is less than 40 minutes by train to New York City, so while prices have definitely moved lower in our area, it’s not the shocking decline you see in places like Arizona, Nevada, Florida and California.
Moreover, I don’t think of an extra mortgage payment as a particularly good investment (I could probably do better in the stock market). I think of having the mortgage paid off before we retire as a form of insurance — a hedge against a job layoff, a pay cut or an unexpected medical expense.
Are you accelerating your mortgage payoff or would you like to? Why or why not? Comment here or email me at laura at laurarowley dot com.