I just got into it a couple months ago. If you can afford extra payments on a mortgage it's a great way to get your mortgage paid down faster. If you don't know about amortization, fixed term loans screw you up front with really high effective interest. If you can get your loan paid down on the front end faster, you can save YEARS off your mortage term. Hard to get into the details in a post, but benefits are:
What I'm Doing
My mortgage is in the last 3rd of the term, so I'm doing this more for other benefits.
Example
Here's an example. These are just made up numbers to show you how it works, it's not a realistic scenario and I'm doing some estimating. I used this loan amortization calculator: Mortgage Calculator | Bankrate
Without HVB
So, using the example of a $300K mortgage at 6.5%, how long would it take you to pay down your principal to $290K? Your monthly payments will be $1,896 but your first interest deduction will be $1,625 or 85.7% interest! This is what people don't get about mortgages; the interest is up front because the balance is biggest earlier.
$54,377 in INTEREST+ $10,077 in PRINCIPAL = $64,454 TOTAL!!! And, it's going to take you 2 years and 10 months assuming your first payment is Oct 1st! So, not until July 2026!
With HVB
Now, let's say you've got some other credit line, say a credit card with 20% interest on a cash advance. Let's say you can pay about an extra $1k/month to pay off the credit card balance. The interest for 1 year is about $2,000, but if you make monthly payments, your interest will be about 1/2 that. When you drop that $10K from your cash advance on your mortgage, you instantly save yourself $54,377 and 34 months of mortgage payments. The additional cost is just the $10K you applied to principal and the $1K in interest.
So, after 1 year, your mortgage principal will be at -$10K from the cash advance and about -$2,500 in regular principal pay down.
That means you've spent $11K to save yourself $54K. Plus, you can repeat the process every year
There are other ways you can use it (for credit card debit), but I'm focused on paying off my mortgage and car. I'm not an expert but I can answer questions about what I'm doing.
- Get your mortgage paid down faster when your effective interest is going to be in the 80-90% range.
- Use your savings in your probably low-interest bank account and apply it to a high interest loan
- You can also live off your line of credit, but direct deposit (or transfer) your paycheck to your line of credit, so you don't have to pay interest on additional balances
- You save a little by keeping your daily balance down by direct deposit into your line of credit since your daily balance is always lower.
- Maintain your cash flow. In other words, if you do have an emergency you still have your available credit to spend (unlike if you made extra payments directly to your lender).
What I'm Doing
My mortgage is in the last 3rd of the term, so I'm doing this more for other benefits.
- I have a HELOC (line of credit) based on my mortgage and my home equity. This is a better option if you can get one. My dad gets one through the VA with a really low interest rate.
- ALL my bills are paid off from my HELOC
- My paycheck is transferred every payday to the HELOC
- My credit cards are automatically debited from my HELOC (I no longer have to manually pay bills)
- I paid off my car with my HELOC. While this isn't a money saver, I now have my title in my name and I'll have that balanced paid off in a year or so anyway (1 year earlier).
Example
Here's an example. These are just made up numbers to show you how it works, it's not a realistic scenario and I'm doing some estimating. I used this loan amortization calculator: Mortgage Calculator | Bankrate
Without HVB
So, using the example of a $300K mortgage at 6.5%, how long would it take you to pay down your principal to $290K? Your monthly payments will be $1,896 but your first interest deduction will be $1,625 or 85.7% interest! This is what people don't get about mortgages; the interest is up front because the balance is biggest earlier.
$54,377 in INTEREST+ $10,077 in PRINCIPAL = $64,454 TOTAL!!! And, it's going to take you 2 years and 10 months assuming your first payment is Oct 1st! So, not until July 2026!
With HVB
Now, let's say you've got some other credit line, say a credit card with 20% interest on a cash advance. Let's say you can pay about an extra $1k/month to pay off the credit card balance. The interest for 1 year is about $2,000, but if you make monthly payments, your interest will be about 1/2 that. When you drop that $10K from your cash advance on your mortgage, you instantly save yourself $54,377 and 34 months of mortgage payments. The additional cost is just the $10K you applied to principal and the $1K in interest.
So, after 1 year, your mortgage principal will be at -$10K from the cash advance and about -$2,500 in regular principal pay down.
That means you've spent $11K to save yourself $54K. Plus, you can repeat the process every year
There are other ways you can use it (for credit card debit), but I'm focused on paying off my mortgage and car. I'm not an expert but I can answer questions about what I'm doing.
Last edited:
