November 19, 2014

This is What We are Striving Towards….

Oct7

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How would you like to save $100,000 in fifteen years?

For most of us, the thought of paying off our mortgage doesn’t hold one tiny spark of reality for the future. (Please, don’t click off because you think this isn’t attainable…there are baby steps that may pertain to you.) My dad has always drilled into us that “nothing becomes dynamic until it becomes specific,” so I thought I would plant a small spark right now for you that may smolder within a few years. Who knows what this little piece of information will do for your financial future. Long term goals are important, and this has revolutionized how we are thinking through things in our family. We’ve already worked on lowering our expenses, paying down debt, and getting a small emergency fund in place, but there are some steps here that may blow those away.

Growing up with some financially sound people in my life, consumer debt was something I managed to avoid.  As a single, working woman, I didn’t bought little things I couldn’t afford, but I assumed that big items such as college, cars, and houses, one just always took out loans, and financed your life around those things. That is just the way things were done. Imagine my surprise to find out there were other thoughts on the issue.

In the financial world, one can find a host of varying opinions about paying off the mortgage, but when we were unemployed, the one thing that continually ran through my mind was, “If only we had our mortgage paid off, we could live on practically nothing for a long time. ” That huge monthly debt played a large role in my thinking throughout our unemployment. Believe it or not, I sometimes play a “dumb blond” on my blog, but educating myself on the ins and outs of financial techie stuff is fun for me. I can barely help my 8th graders with Pre-Algebra, but start talking interest rates, investments, and money saving plans, and I start sounding like I know something.

So, here are my mortgage thoughts in a nutshell or a big shell. The majority of us would never “own” a house if we had to pay cash for it up front, it’s just not a reality, but that doesn’t mean that we can’t strive towards paying it off as quickly as possible or even splitting our payments and paying every two weeks. (Believe it or not, this can make a huge difference.) Right now is a historic time to refinance. When my husband and I bought our home, our mortgage loan was a 30 year adjustable rate mortgage (ARM), which meant that for the first two years we were living large with this fantastic rate and then all of a sudden, it readjusted and our monthly payments went up tremendously. We about died…AHH…we just didn’t know better because at the time because it was all we could do.

Many people take out a thirty-year loan thinking they’ll just double up on payments and pay it off sooner. The reality of that is that even if you “pinky promise” yourself that you will pay extra, you won’t. Something else always finds priority. Statistics from the FDIC state that 97.3 percent of people do not systematically pay extra on their mortgage. Realistically, are you going to be that .7 percent that actually pays? Most likely, no, not unless you get very intentional about it.

As we look at a 15 year mortgage vs. a 30 thirty year mortgage, I want you to sit down for this fact.  Do you know that if you pay just $250 more per month, you will save $100,000?!!! ONE HUNDRED THOUSAND!!

Interest rates are at an all time low!! I can’t stress enough that you should call your bank now and check into your options!! I realize that many of you may not qualify for a 15 year mortgage because they do all this debt to ratio numbers stuff that starts sounding Greek to many, BUT many of you can switch up and do what we did. Set your mortgage bank account up so that it automatically withdraws an extra amount each month. That way, your sticky fingers never see that money, and you don’t have a chance to change your mind at the last minute. :) Even if it’s an extra $100 a month, it will equal thousands and thousands of dollars over time.

One of my wonderful friends, Joy of Five J’s, has been on a debt snowball reduction plan this past year, strategically paying off debt left and right. I am so proud of what their family is doing. Their latest revelation was in terms of their mortgage. She is another one of my geeky friends, so one night we were talking refinancing ( I know, I know…don’t laugh). I asked her this morning if I could share the huge amount of money they will be saving by not only refinancing, but also paying extra each month. Look at what taking this one small step towards financial security will do for their budget. Here’s her explanation.

“We have 23 years left on our current 30 year loan. We’re refinancing our mortgage to save 1% on our interest rate (dropping it to 4.75%). Although we’re refinancing to another 30 year loan, the savings in our interest rate means that we can keep paying the same amount each month on our mortgage payment that we’ve been paying for the last 7 years, and we’ll save $30K in interest, PLUS our house will be paid off in 18 years from now, instead of 23. If we pay about $100 extra on our payment each month, we’ll save another $10K in interest and pay off the house in only 15 years. Also, since were refinancing through our current mortgage lender, we don’t have to pay for another appraisal or a home inspection. As an added bonus, because of the refinance, we’ll be skipping a mortgage payment, so I can use that month’s payment to pay down on our credit card balance.”

YEA, Joy, thanks for sharing.

Whew, that was a lot of information, and I know all this stuff isn’t always “fun” reading. You’d much prefer me getting off the personal finance talk and onto my fun frugal fashion and spray painting tips, but don’t worry, I will. It’s just that if we are really going to Do More with Less, some of these bigger issues are pretty important. I’ll be mixing it up over the next few days, so stay tuned.

Edited to Add: There are already some great discussions being added in the comments section, so don’t miss those. Feel free to share or ask away. Everyone can pitch in.

31daysmore125Have you missed one of my “31 Days to more with Less” posts? Follow along here, and don’t miss my sweet friends joining me in our “31 Days series.” If you can’t remember their topics, refresh that memory at my first post -  31 Days of Amazement.


Comments

  1. Great blog post!! Unfortunately many people think this is unreachable. We sold a home for a little profit many years ago so we could buy a piece of property, put a mobile home on it while we built our dream home with cash. It took a long time but my husband was working in construction at that time and he brought home lots of discarded, new building products. I called it our hodge podge house but in reality it was a $2600 sq. ft. dream house with about a $12,00 loan. We sold it four years later and built a smaller house. We had X amount of $$$ and had the builder work with that number. A lot of people thought we were nuts to “downsize” and just have the “basics” in the house but we have no mortgage and that has been a life saver over the years. Keep up the great work!

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    Jens Reply:

    @Sarah, What that is amazing, Sarah…thanks for sharing. I can’t even imagine building your own home, but I bet it was so rewarding. :)

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  2. I think this is a great post because I, too, am interested in finance. I also liked yesterday’s post about your van. We are in a rough spot right now. The good news is, we managed to pay off all of our debt (vehicles/student loans) in these first five years of marriage. We still have a mortgage (which isn’t an impossible figure).

    In two months, we will have our second child, which means our Chevy Cavalier is a bit small – especially since our family lives 1000 miles away and we like to visit once or twice a year. We think our priority should be saving to pay cash for a bigger vehicle instead of putting extra on the mortgage. BUT we will be saving for a long time since used car prices are continuing to go up! So it is hard to know what is the best financial decision for our one-income family.

    The idea of putting extra toward the mortgage to save money really appeals to me, but not sure if it is realistic right now.

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    Jens Reply:

    @Rachel, Rachel – you know what’s best for your family. Maybe you could see if paying the same amount twice a month would make a difference. Sometimes, just that change can really add up.

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  3. We did an ARM for our first home too… YIKES! It’s astounding that ARMs are even legal! Luckily my husband was transferred and when we moved we got an awesome interest rate… like a little 4%! A great way to also pay more is to make mortage payments every 2 weeks… I think we figured it up and doing it that way we actually make 3 (or 4) extra payments a year! We’re happy to of made this discovery (not that others haven’t thought of it… but it was a first for us!).

    You’re lucky to grow up with financially sound people. Neither of us did, so we try super hard to retrain ourselves and not make the same mistakes as others around us. Not saying we don’t make mistakes, but they’re definitely not as big.

    I’ve found a lot of women do not educate themselves on finances, they really should. I get ya on math sucks… but get me talking about personal finance and it’s a whole new ballgame!

    Love your site so much, for the fun AND serious stuff!

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    Jens Reply:

    @Tys, Thanks so much for reminding me about the every two week option. We are actually doing that and I completely forgot to mention that.

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  4. We are paying the extra payment on our mortgage every year, without even thinking about. This key is for it to be automatic. How do we do it? We signed up with an every other week payment plan with our mortgage company. If you sign up for this program, there are always two months a year where there are 5 weeks in the month rather than 4. As such, those two extra weeks in the year equal to an extra payment a year. This makes a 30 year mortgage turn into a 23 year mortgage, and for us it has been painless, because it is debited from our account every other week, which is also how we get paid.

    Of course, reducing your rate, and switching to a 15 year loan is a great thing to take advantage of, as well. We just couldn’t swing the payments on a 15 year loan even with the decreased rate. Also, as far as the rates, my husband has been laid off 3 times in the past 2 years, so we have been finding it difficult to get those great rates, despite having excellent credit. We have 5% so we are satisfied, but I wonder if anyone else has run into this difficulty?

    Keep on blogging on ways to squeeze a dime out of a nickle-I am reading frantically, as my husband recently got a job for $13,000 less a year, and we are desperate to decrease our spending.

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  5. Great post! I’m an accountant, and this is an area I’m passionate about. Living debt-free is tough in today’s world, but soooo worthwhile :)!

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  6. Sara Matthews says:

    Love your site and your topic for the 31 Days. The Hubs and I are at a crossroads with money. Although for people our age in our time of life (one kid, 5 years married and early 30s) some debt is pretty common – I am no longer comfortable. I’d estimate we owe everyone about 40K not including the house which is another 135K. Most of our debt is on ONE CREDIT CARD. It’s my Husband’s card, of course. He ran up $20k in one year after we paid off our honeymoon which was also on that card and took 2 years (it was $10k). I also have a card which I use and typically it has around 1.5K on it at any given time. It’s really our Oh S*&t card when the joint account runs out before payday. Ugh… I’ve really been looking at the Dave Ramsey program. I’m fine with money on my own and can change my spending on a dime and enjoy cutting coupons and saving up but with the Hubs it’s impossible to get on the same page. How in the heck do you do it?!

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  7. My husband and I were one of the .7% 18 years ago when we paid off our first house. The next one was bought debt free and we’ve never paid another mortgage payment – ever. It can be done! What a blessing it is!

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    Jens Reply:

    @Melinda, Melinda…WOO HOO! Thanks for sharing. That is amazing and I can’t wait to join you…someday. :)

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  8. Jen, I wish you lived near me so we could get together and talk financial geek! If I bring up mortgage refinancing in conversation, my lady friends look at me like I have two heads! We are 18 months into a 15 year loan at 4.75%; I’ve calculated that we could pay this off in 5 YEARS if we add $1400 to the monthly mortgage payment. Thanks to my husband’s new job, this is actually an attainable goal – but you are right, it needs to be automated or that money will magically disappear. I’m such a geek, I hang out in the mortgage refinance discussion forum on FatWallet and am actually considering a refi if I can knock 1% off our loan rate – it would only save us $100/month or about $5000 if we accelerate our payments – but since I’m a SAHM I would consider it my contribution to our finances. Do y’all do that? Take credit for the money your efforts save your family? Consider it your contribution to the family income?

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    Jens Reply:

    @Susan, Friend – we are the Family Managers, of course we take credit for those kind of savings. :) hahah

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  9. We have been working on a plan too having just finished Dave Ramsey’s financial peace university. We only have our house payment remaining. We were fortunately to refinance our 30 year mortgage at 5.85% to 15 years at 3.85%. It is a minor increase monthly and we have committed to throwing any extra income at the end of the end of the month. We have a plan to reduce our expenses but it is nothing major and we think we can still pay off our house in about 7 years. We are thrilled.

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    Jens Reply:

    @Chandler, That is an unbelievable rate.Congrats! The end begins to shine through, doesn’t it?

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    Christie Reply:

    @Chandler,

    That is a great rate!! Congrats! I am now going to go check into that too! Thanks for sharing :) Crazy that rates are less than 4% now!

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    Chandler Reply:

    Definitely check into it. It has been a couple of months and I think the rate went even lower than that during that time, but definitely worth checking into.

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  10. We could make a one time extra payment on our mortgage each year. So we had a savings account and put a specific amount in each paycheck. At the end of the year we made an extra payment which came off the principle and reduced the length of the mortgage. We had our house paid off when I was 35.

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    Jens Reply:

    @Lori, That is AMAZING! Just tweaking that little bit that you did…wow, what a difference that made. Thanks for sharing your success.

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  11. I WORK in that industry, real estate law and we do a lot of closings through the title division. All I can say is that you need to be prepared to possibly pay a little money out of your pocket if you purchased your home in say the last 5 years. Why? You probably don’t have that much equity built up and chances are the appraisal will come in a bit lower than you thought. But on the other hand, IF you’ve lived in the same house for years, and haven’t refinanced then you most definately are a candidate. They are even offering ARMS again and the only time we would recommend that is IF you are planning on being out of that property BEFORE it resets. But really, with rates very close to 4% there is NO need to push it :) Good luck all!

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    Jens Reply:

    @jan, Jan, you are SO right. I completely forgot to mention the under five year factor. Thanks for sharing. :)

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  12. I grew up in a home where finance was never discussed. I am so NOT a math person, so finance has always intimidated me. With the economy so uncertain I feel I need to get over my fear and get debt-free. I would love a list of places to check out…I am looking of finance for dummies! I would love any tips! I know that being debt free would really help my relationship with my husband…who is UBER finance geek! I hate that money causes such conflict in our relationship. I am really wanting to teach my sons to be responsible without being overbearing or controlling!

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  13. Hi! I remember you from Savvy Blogging! Great post, and soo true! Not geeky to me, incredibly stylish!!! We are doing much of the same and it’s amazing to watch the principal go down. What are your favorite personal finance sites? I have difficulty calculating the long term effects, etc and it seems every time I go to a different online calculator I get a different number.

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  14. Thanks for reminding me to check into paying twice each month instead of all at once.

    At 4 years into our 15 year mortgage we just refi’d to a 10 year at 3.75%!! I’m so excited b/c without doing anything differently we’ll be paying off our house a year earlier and our payments are $200 less each month. This is our month between old and new mortgages, so I’m going to pay what would have been this month’s payment as extra principle too.

    I am so blessed to have a husband who is willing to dig in and figure all this stuff out! Unlike you, regular math I really get… financial math, not so much!

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  15. We have always lived waaaayyyy below our means on only one of our two incomes. The other one was automatically split between extra mortgage payments and RRSP (that’s retirement savings plan for canadians, the 401k)

    The house was paid when I turned 32 and this enabled us to do the most wonderful thing in the world : I can stay at home with my baby girl! When I seen my friends buying huge mansions that they will pay for 25 years and not be able to go on vacation because they are house poor, I really find myself lucky to have such a financially wise husband… All the efforts were worth it in the end!

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  16. Please keep sharing this information. I surely would have thought ten years ago we’d be in better shape than we are now, but life happened…and a job disappearing really can happen to anyone. Debt really is no way to live. But we’re staying positive and keep chipping away at it. All your suggestions help so much. Thanks!

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  17. Ah, so timely!!! Thank you Lord for this affirmation. My husband just signed the deal on refinancing our mortgage from a 30 year to a 15 year and although I prayed for the strength to be supportive of the decision I was panicked! Before we made the payment with just one of his paychecks, that was safe, I had extra $ to blow. Now we need a little more from what I bring home and it is just scary to think we need two incomes to stay afloat. BUT I know it is the wisest thing to do, we have no other debt and want to be free of the mortgage before college expenses start for our boys. Really when you look at the savings in interest over the life of a 30 year it is insane!!! I’m trying to live in faith, not fear so this is a great start. Thanks for sharing on topics not always found on ‘Moms’ blogs!!

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  18. We have so much other debt that we have to pay off before we even think about our mortgage! We have a home equity line of credit we took out to adopt our son and add on to our small home…does anyone know about these? Should we try to refinance to a 15 yr. and add this in? So confusing and frustrating…we never seem to have extra $$ at end of month to debt snowball…uuuggghhh

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  19. When my husband and I first bought our old farm house and 40 acres 27 years ago…. we wanted to be debt free as soon as possible. Over the next 15 or less years, we tried to pay as much extra that we could scrape together each month towards the principle. It really works! Sometimes it wasn’t much at all… but every little bit helped…. and this was while raising 5 children, assorted animals and fixing up our old home. We have lived frugally all these years, having a huge garden, raising a lot of our own meat, shopping at thrift stores for clothes, giving the men-folk their haircuts, decorating on a dime… you name it…we’ve done it…. and it’s been a fantastic voyage! We’ve been debt-free for so many years now while seeing so many of our friends and family sinking in debt. We all need to open our eyes and live within our means. That may mean not having the best looking car (I could tell stories of the vehicles we have owned!), house or “things” …. but the peace of mind is WORTH IT!!!

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  20. We recently purchased a house and this post and comments are very timely. I think it is fantastic to make extra payments on house payments. But I wondered if in the current economic climate with the high job lost rates, would it be best to first make the standard house payments and put some savings aside to cover two years’ worth of expenses? After banking a savings cushion, then go ahead and make extra house payments.

    Any thoughts or comments? Thank you.

    Monique

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    Jens Reply:

    Absolutely – This is an end step, FOR SURE! I’ve talked about having a emergency fund and paying off the other debt first. I’ll be revisiting that and re-reminding people of that fact often. Now, typically, putting savings aside for two years of expenses would be very extreme. Six months is what most advice, but if you have the capability to do two years, that’s amazing.

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    Jens Reply:

    oops, forgot to say though that often with refinancing right now, people won’t have to pay any more and I was surprised to find how taking the same house payment and just splitting it up into biweekly payments saved as well.

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  21. My husband and I are renting until we can afford a home, I’ve had too many people in my family file bankruptcy to do anything else.

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    Jens Reply:

    @Kasey, Absolutely – you can NEVER go wrong with renting, and then paying cash. Good for you!

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  22. We owe $35 to 40 K more on our mortgage than our home would currently sell for. The value has dropped 90K since we purchased, wiping out all of our equity. I have not been able to find anyone who would consider us for refinancing, even though we have excellent credit and enough income to pay our bills. Anyone else have any experience with this situation ? We would love to refinance, but may need to go the “increase your income” route ( if able) to pay down this debt more quickly.

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    Susan Reply:

    Hi, Kim! Take a look at the finance message boards at fatwallet.com – there is a lot of discussion about refinancing there. The problem you (and many other homeowners) face is that mortgage companies want your loan-to-value ration below 80%, so if you are upside down on your loan, they won’t refinance it. If your current loan balance was within a few thousand of the home’s value, you could do a “cash-in” refinance, which is sort of like making a down payment on the refi. If you plan to keep your home for a long time, you could start paying extra on your mortgage as your budget allows and once you get to the magic 80% LTV (loan-to-value), you COULD refinance if mortgage rates are still low.

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  23. I’ve been a big fan of your blog for a while now but I’ve never posted before. We spent this past summer in our own God Watch, which just came to a successful end a few weeks ago. I have to admit that it was stressful at times (uncertainty is rarely fun!) but we were able to “almost” enjoy it because we have absolutely no debt. We paid off our home almost 3 years ago and we have no other debt. We like to joke that we own our home and we own everything in it, including the cars in the garage and the diplomas hanging on the walls. Unemployment stinks, but it stinks a lot more when you’re in debt! Here’s the funny thing… we had so much fun in the last stages of paying off our home that I honestly MISS that period in our lives. It was a joy to see progress on a shared goal and it was a HUGE learning experience for our children. We even took them out of school to go to the bank with us to make the last payment. My best advice is to not wait until you think it is an achievable goal. Just dig in! There is a little bit of “loaves and fishes” magic that takes place when you commit to it and get started. It is probably much like getting married or having kids… if we waited until we were “ready” we would all be single and childless! LOL! Enjoy the journey and thank you for all the joy your blog has brought my family!

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  24. I love this post! I can’t thank you enough for your blog! It has helped me realize that I have control over my money, it doesn’t control me, and that I can live joyfully no matter what my financial situation may be.

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  25. Going to bring this up with my hubby right now.

    I had no idea. I’m so so grateful for your blog.

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  26. EPIC post, B&B. You’ve inspired me. I’m a Dave Ramsey NUT. My husband and I were JUST talking about how the cost of living where we do is nuts and almost HALF of his income goes towards our house. The mortgage is only a fifth, but it’s the TAXES and mainainance of our building. It’s crazy. We are considering relocating to another area that is cheaper so we can save more cash and pay off a mortgage much faster. You are so right, if you don’t have those monthly mortgage payments every month, you are talking about massive wealth building.

    Thanks for such an inspiring series and post. Well done.

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  27. How timely! My husband and I are currently looking to refinance from a 30yr fixed to a 15yr fixed. We are paying extra every month on the mortgage principal. Can’t wait to be completely debt free!

    Mary Ellen

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  28. I think you are an amazing blogger with fabulous and inspiring ideas, but something about this didn’t set well with me. It’s wonderful that you can do this, but if the average American income before taxes is 50K then $250 a month would be 6% of their income. In today’s economic climate, and with the high cost of health insurance ($600 a month just for my two kids on a teacher’s salary of not much over the household income listed above), I don’t see how most people can do that.

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    Jens Reply:

    Nick – you have to do what works with your family’s budget. I gave a few different examples that could still work. One would be just splitting your already existing payment into twice a month, rather than once a month. That means no additional income out of your pocket. Also, my main recommendation would be to just look into refinancing without changing one thing about paying an additional amount. The $250 was just an example, but if you read the overall post, I am definitely not recommending that to everyone. Sorry if that was confusing. We were able to refinance and our actual monthly payment would have gone down $250 a month. Since we had already been paying the other amount, we decided to just keep that in there, so just be refinancing it allowed us to do that. It wasn’t something additional out of our income.
    There have been plenty of times when we couldn’t do that, but it doesn’t mean that it’s not a goal to set for the future. Some people have chosen to sacrifice in other ways to pay extra. It’s just an idea, definitely not something that is right for everyone. Even if it’s just a few times a year, I don’t think most people know of the huge overarching amounts of money that can be saved.

    As a family who has made it on less than $40,000 during certain periods in our life (for a family of seven), I do know that it’s possible, but it also depends on where you live, your existing mortgage, debt etc. Hope that explains it a bit more.

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  29. Great post + many comments reminded me of an article I read @ least 15+ years ago in an edition of “Cheapskate Monthly” a friend had given me. The writer spoke of a strategy for owning a home free & clear in 10 years. They figured the budget available for a home they could afford – for example $140,000 – then purchased a home for 1/2 that – $70,000. Then they adjusted their payments so they could have it paid off in 5 years – only ending up paying a little more than they would have paid on a loan for the larger home. At the end of 5 years, they sold that home at an appreciated price – put the entire sale amt as a down payment on the 140,000 house, and again adjusted the remaining morgage to pay it off in 5 years. I haven’t been able to use this strategy myself (I married a gentleman who already owned a home), but it sounded like some of the soundest advice to potential homeowners I’d ever heard.

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  30. The first time we refinanced our house my husband thought we would have a lower payment, but I convinced him to go from a 30 year mortgage to a 15 year and have a slightly higher payment. Not too many months after that refinance, the rates dropped enough to make it worth refinancing again in 2003. At that time we left the payments the same as the old loan even though we had a lower rate — I believe the extra was about $60 per month which was going to drop 2 years off that 15 year loan. Fast forward to today and we have gotten very intense. We are putting as much extra as we possibly can — almost doubling our required payment and if income doesn’t change the house will be paid off in only two more years (Which will be nine years since we refinanced with that 15 year mortgage.) Almost a year before our oldest starts college. What a help that will be. At this point paying extra points to get a much lower rate doesn’t make sense for us. We did receive an offer for a no closing cost refinance from our current mortgage company to reduce our rate by 1%. It looks like it is true and that 1% will save us approximately another $1300 even with only two more years to go, if things go as planned. It is possible to be 100% debt free and how liberating that will be. A high paying job will no longer be necessary — month to month expenses will be very easy to cover!

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    Sonya Reply:

    @Sonya,
    The previous comment should have read $160 extra per month rather than $60.

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  31. Loved this post. Thanks for sharing. My husband and I bought a piece of property and build a 4-car garage w/ an apartment above. It was about 900 sq ft. It took us a little over 2 years because we only did something when we had the cash. We planned to move in and then save the money to build the “real” house right beside it. We sold our home and paid off the property w/ the equity. Three years and 2 children later we sold the home because of a job relocation. Even though we hadn’t started building the “real” house we had saved money towards it. So with that and the sale of the garage appt that we didn’t have a mortgage on we were able to pay cash for a home in our new town. Talk about freedom.

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  32. We are refinancing as I write to 4.375% down from 5.5%. It will only save us $141 per month, but if we keep paying that $141 as extra we will more than double the amount we are paying on the principle! I haven’t figured out how much interest this saves or how many years, but doubling the principle is a pretty nice dent in the debt!!

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  33. Since I’m Canadian our mortgage system is a little different, but if you’re able to pay weekly I highly recommend it. We’ve taken years off our mortgage and saved HUGE amounts of $$$$$ because of it. We own a home (pay weekly) a cottage (pay bi-weekly) and condo which we rent and pay monthly………I’ll be changing all of them over to weekly payments this month as the savings are just too good to pass up.
    FYI: another tip is using a bank that has NO FEES (plan, deposits, withdrawals fees etc) I just recently switched us over to one (major pain in the butt) but well worth all the trouble as we are saying between $200-300 year which I’m putting directly into a savings account. Hey why pay a bank, when you can pay yourself!!

    Thanks for the great post!!

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  34. I just wanted to comment on paying the mortgage every two weeks. There is usually a hefty fee to pay to have that set up with the bank. Also, the service companies that do these actually will collect your money every 2 weeks and then pay the bank just once a month still. We just refinanced and looked into this option and our bank was very up front with us about the fees and how it works! If you pay just one extra mortgage payment a year, it will have the same affect as paying every 2 weeks. I was a CPA in my previous life (before I had 5 kids ;0) and now I am a math tutor…..so I am one of those weird people that love BOTH finance and math – oh, yeah, and I like going to the dentist, too!!!).
    Don’t forget that you can also refinance for different terms not just 15 or 30 years. We didn’t want to have to start over again with the 30 years since we had already refinanced a few times before. Yet, we couldn’t afford a 15 year term so we went with a 20 year. We refinanced at 4.25%. We only have to pay $50 more a month more than our current payment.
    Also, please watch out for the closing costs! They are good at hiding fees. I always make sure that we don’t have to pay loan origination fee (points). Some banks will say that you don’t have to pay points, but they jack up other costs. Keeping a spreadsheet comparing different banks and their fees is a good way around this!
    We are going to attend Dave Ramsey’s Financial Peace University in January! Can’t wait!!!

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    Jens Reply:

    @Margaret, Thanks, Margaret, for adding your insight. Appreciate you mentioning the 20 year…great idea. I haven’t asked, but I bet since we refinanced with the exact same bank they waved the pay every two week fee? Just guessing. And you’re right, closing costs are always tricky. We made sure it got adjusted right into our refi.

    Thanks again for your valuable insight. :)

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    Melissa Reply:

    @Margaret, I work with Mortgage lenders as a signing agent. Another cost calculated into the Closing Costs is Escrow for the taxes and home owner’s/hazard insurance which is sometimes several thousand dollars, making the total closing costs anywhere from $2,000 to $7,000. Many companies and even states (like PA) are requiring an escrowing account to pay taxes. Also most companies (not sure of banks) do require $400-$500 fee out of pocket to initiate the Refinance process (appraisal and credit check is the first step with your money). The biggest thing is to make sure it is worth refinancing (lowing your rate) vs. adding $ to your loan when you roll your closing costs in (unless you pay all closing costs out of pocket, which is always an option). If you are likely only to be in your home for a few years, it may not be worth it. We refinanced and were able to save $100 a month, but need to stay in the house for 5 years to make it worth the money to refinance.
    Hope this helps.

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  35. We paid our mortgage off earlier this year — 9 years after buying our home. We’ve always paid extra on the mortgage but once we really committed to paying it off, the money just happened. I know two years ago when looking at the amount left to pay, it seemed impossible (our goal was to pay it off by the end of this year) but somehow once we really set our minds to it, it seemed doable. We paid it off 8 months early (using tax refunds, bonuses, any extra money — mind you, my DH’s salary has not increased in the past few years so we’re working with the same amount as always….) and now are saving up for some repairs and improvements. I think living debt free is a mind set and once committed to, it makes a person more creative with money — anything becomes possible!

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  36. Jenn…thanks for sharing all this great info! We currently have a 30 yr FHA mortgage with BB&T…we bought our home in 2001 and did a streamline refinance in 2005 and lowed our interest rate 2 pts…we now have 5.5% and our mortgage lady says she doesn’t think it’s worth it for us to refinance because we would only be saving 1 point. I have received a few offers in the mail from other lenders offering around 3.5% but it’s not fixed for the entire life of the mortgage…really do not want to go that route. Also, what is this pay every 2 weeks thing??? Do you take your payment and divide in half? I have heard of this but never looked much into it.

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  37. Great post. So true – you never know what you can do until you try! My husband are working really hard to save and pay cash for our first home. We aren’t sure if this achievable but we are working toward it, and, even if we fall short of paying 100% cash, we’ll be light years ahead of where would have been if we just tried to save up a down payment an spent the rest of our money. We both work full time (no kids yet) and are living on only one income (the lesser of the two, and we’re even putting a little into savings from that income). So after paying taxes and giving to our church, we are able to put an entire income into savings.

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  38. We don’t have a house yet (that is probably still a good 5+ years away), but our plan is definitely for a 15 year. We are putting a little away for a house, but right now we make next to nothing (both college students, no loans here), so this is still a “someday” dream. :P

    I love Dave Ramsey. :) We’ve been listening to him since before we were married, and because of that, we’ve never been in debt since getting married.

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