Time Versus Debt Versus Value

Balancing time and moneyCredit: Pixabay public domain images

The longer you take to pay off your mortgage loan the greater the cost in diminishing returns exists based on your home’s actual value versus the amount you paid the bank for that same home. So how much did you really pay for the house after all is said and done? If you've been paying on a mortgage for 20-30 years, you can easily have paid twice the original selling price.[1]

Add Payments

Make additional payments, in other words add additional money beyond your base monthly mortgage payment. You can greatly reduce the duration of the loan, the amount of the interest owed on the original loan while quickly increasing your equity in your home. Any additional money you add to your monthly mortgage payment will be applied by the bank directly toward the principle debt (original loan debt). By adding an additional $25 to your monthly mortgage payment for six months, then continuing to add an additional $25 dollar increments for every six months, you can pay off a 30 year mortgage in as little as 15-years.


This takes a lot of discipline in managing your budget. Adding an additional $25 per month for the first six months of the loan is not difficult; increasing that to $50 per month for another six months takes a bit more discipline. You will need to continually increase by increments of $25 dollars every six month period for as long as it takes to reach the full payoff of the loan. This takes a serious amount of discipline and personal home budget management. You can, from time to time, infuse a single larger dollar amount into your monthly payment in order to help reduce your principle debt. By year fifteen you will need to reach an additional $850 to $875 to the monthly payments. This will result in a savings of $44,392.72 of interest versus the original debt that would have been incurred of $98,552.42 over a 30-year period.

Dollar BillCredit: U.S. Treasury, uploaded by Hohum, 2014

What is Your Budget; What Can You Manage

I know it seems like a big drain on the home monthly budget; however, consider all the issues: do you want to be mortgage free by the time you retire; do you want to save yourself the significant loan fees; the benefits gained when your mortgage free allowing you to pay cash for your next home, or draw against the equity of your home; and one of the most significant benefits whether you are retired or not, after your home is completely paid for, the monthly payments along with the additional payments you had been making are now cash in hand for your use. In other words, using our previous example, the $690.42 mortgage payment plus the $875 per month additional payment gives you $1,565.42 back into your monthly budget.

Do You Really Want to Owe in Retirement

Although the focus of this article has been regarding being mortgage free, I would be remiss if I did not take a moment to mention that there are many factors to consider in planning, preparing for, and entering into retirement, especially if you retire at an early age, for example within the age ranges 45-62 (pre-social security qualifying ages). Clearing your proverbial retirement planning plate of a mortgage debt will go a long way in creating financial freedom, open doors for funding retirement vacations, paying off other debts or at least staying on top of revolving debts, such as credit cards. The list of advantages is endless. A mortgage is the biggest debt that most people have to deal with; when it is gone, so goes a big headache.

Retired couple walkingCredit: MorgueFile: Seemann, 2011

This is a major reason why this should be a goal in your retirement financial planning. Between the cash value of your home and the additional funds in your pocket each month after you’ve cleared your mortgage, and any savings you may have set aside, in your retirement you have a lot of freedom as to where you want to live and your plans for a monthly living budget. If you are willing to add a more significant amount of money each month starting month one and staying consistent, by adding $400 per month every month by the 180 payment you will have paid off the loan in fifteen years instead of thirty years. By this action you will have paid only $45,882 in interest instead of the full $98, 553 of the 30-year loan.

HouseCredit: cory stophlet, 2014

Last Word

Keep in mind that this loan pay-down or early pay-off method will work with any loan based on an amortization schedule, even with auto loans. If you are skilled with software programs like Microsoft Excel, you can develop your own personalized loan pay-down plan. Microsoft Office website and others, have templates for this purpose that can be downloaded for free.