Last month (June):
Years left: 4
P =$995.17, I =$219.23, Escrow =788.73
This month (July):
Years left: 3.75
P =$1,007.01, I =$207.39, Escrow =788.73
One month’s prepayment savings: $7.90
Some fun tiny milestones this month. We’re under 50K in our mortgage balance. We’re over $1,000 in the amount of our regular payment that goes to principal. Next month we’ll be under $200 in the amount of monthly payment that goes to interest. That’s pretty cheap rent! (Our utility bills are far higher than that, at least in the summer. And I guess technically the escrow part is also rent, making it a bit more expensive.)
At this point there’s two warring feelings going on. On the one hand, wow, we could just pay that sucker off. It is totally manageable at this point. If we applied our extra money sitting in savings (waiting far too patiently to be turned into bathroom linoleum, to fix the damage the kittens did to the master bath, and to finally do *something* about the kitchen) and our emergency fund and our summer money it would be gone. And we’d still even have DC1′s school tuition left. (We’d have to re-save up for all those various funds, cutting spending under DH’s income, but it’s not like we’ve been in a hurry to fix things because man we’re lazy.)
On the other hand, the way that mortgages work, paying a huge chunk of money down now doesn’t save anywhere near as much money as paying the same chunk early in the mortgage. If we paid off our mortgage tomorrow we would save about $4,372.91 (possibly a little less because we’d have to pay a day or two of interest before the transaction went completely through) assuming the alternative is to stop pre-payments entirely and let the mortgage take its course. $4,372.91 just isn’t a whole lot of money over a 3.75 year period. If we continue pre-paying the $1,996.87 that we’re pre-paying each month, we’ll only pay an additional $1,473.20 in interest over the course of the mortgage, meaning that by paying it off tomorrow instead of as we’ve been doing it, we would only save $1,473.20 (and we’ll be done in 1.25 years). That’s even less savings!
Having the money and the option of stopping pre-payments allows us a lot of freedom. If DH’s company goes under, or I want to take a sabbatical, we could do that more easily by just stopping pre-payments. Paying off the mortgage entirely would free up less than 2K/month because >1/3 of our regular payment goes to escrow. It would stop the pre-payments too, but we wouldn’t have that pre-payment money anymore anyway because it would have gone to the mortgage. (We wouldn’t have our emergency fund either, for that matter, and we’d have to cut way back on spending.) Stopping pre-payments while still having the money we were using to pre-pay in the bank saves a full almost 2K/month. That’s kind of fuzzy math there, but liquidity is what’s important in those measurements. Not paying off the mortgage provides more liquidity in the case of an emergency or other desired expenditure.
And we’re willing to pay $1.5K – $4.5K over the course of almost four years for that freedom. In fact, it’s tempting to stop the prepayments entirely and just wait out the 3.75 years… but if we did that I’d feel even more guilty about the extra money building up savings (the next risk-free option) earning next to no interest. Keeping on with the current course doesn’t require any thinking and slowly depletes the extra amount in savings rather than increasing it thus forcing me to figure out where else to put the money while it waits for us to call home repair people to take it.
When you get/got close enough to the end of your mortgage that you could see it, would/did you pay it all off or drag it out?