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.