June mortgage payment and musings on interest saved near the end of the loan

Last month (May):
Years left: 0.833333333
P =$1,166.21, I =$48.19, Escrow =$812.79

This month (June):
Years left: 0.75
P =$1,170.83, I =$43.57, Escrow =$812.79

Amount saved from prepayment:  $0

Three quarters of a year left on the mortgage.  That’s 9 months.  There’s less than 10K remaining.

We could pay it off pretty easily at this point even as we enter the unpaid summer and the end of our expensive year in paradise.  (Watch the savings account drain with living and moving expenses!)

But if we paid if off, do you know how much we would save in interest?  $180.20.  One hundred eighty dollars and twenty cents.

That’s not much.

Paying down 10K at the beginning of a mortgage can save huge amounts in interest, even with inflation taken into account.  But near the end, it’s the price of a pair of European shoes.  Or the reward you might get for opening a new bank account.  Or a fancy dinner out.

So even though it would be easy to pay off the mortgage right now, there’s really no point other than saving the hassle of writing checks, which isn’t a hassle that particularly bothers me.  But putting lump sums towards the newly refinanced mortgage 5 years ago made a lot more sense in terms of interest savings.

Would you pay off a 10k debt in a lump instead of over 9mo in order to save $200?


32 Responses to “June mortgage payment and musings on interest saved near the end of the loan”

  1. ralucacoldea Says:

    Provided you would not need to go into debt if something unforseen happens (so you actually have more money saved for emergencies), I would most definitely pay out the entire thing off. Why leave money on the table?
    I would rather I went out to dinner to a fancy restaurant rather than have the bank get more interest. I would still do this even if it was just 100 dolars, because that would still be about 10 average ebooks or 4-5 nice and shiny hardcovers. Again, why leave money on the table?

    • nicoleandmaggie Says:

      Because it is worth more in other investing venues and $200 is not worth much. Our income is large enough that we have plenty of income insurance and can take on extra risk.

      Back when we had less income and less wealth your logic made more sense for our situation.

  2. Miser Mom Says:

    I agree with ralucacoldea. Plus, for me, there was something psychologically rewarding about paying my mortgage off ahead of time — it was like I’d done something great myself, as opposed to what I might have felt if we’d just run to the end of some contract. I mean, I know you’ve been prepaying a lot already, so it’s already early, but that last payment just felt . . . like a celebration I wanted to have.

  3. Leah Says:

    I remember discussing this before and your concerns with banking costs, fees, etc once you’re done paying off the mortgage. That might be the only thing holding me back, because I do like the psychological edge of being done with something. I did pay off a $13k subsidized student loan in one fell swoop just a week or so before it started accruing interest; getting that much money loaned completely free felt really, really good even though the big payment was somewhat vomit-inducing.

    The big benefit to being done with the mortgage is that you can channel all the mortgage payment into a holding account for a kitchen reno and have that amount saved up fairly quickly.

    If you paid off everything now, you could use the $180 to celebrate at a fancy restaurant in Paradise!

    • nicoleandmaggie Says:

      We also paid off student loans ASAP, but we had a lot less money back then and needed to reduce required payments and reduce risk before we could start investing.

      We will have enough to renovate the kitchen without the 2k/mo we’ve been sending to the mortgage, and remember 1/3 of that will still need to go towards property taxes and insurance. If we were using our mortgage payments to pay for the kitchen, we would have to wait several years. Which we may end up doing anyway since we’re time constrained.

      We could go to a fancy restaurant if we wanted without paying off the mortgage, and technically we won’t have “saved” that amount for 9 mo.

  4. bogart Says:

    If the alternative is, leave ~$10K in an interest-bearing bank account paying ~1% (or less) and you’re already maxing your retirement savings then … sure. If it’s anything else (and you anticipate, as you clearly do, having income to cover the mortgage payments) then, no.

    • nicoleandmaggie Says:

      Well, right now that’s what we’re doing but mainly so I don’t freak out about moving back expenses (also little kitty). When we get back home I will figure out what to do with the rest since we won’t need as large an emergency fund. Probably the taxable stock market.

  5. Dame Eleanor Hull Says:

    It’s worth $200 not to worry about other expenses, especially if you’re worried about Little Kitty’s needs. Of course, I speak as a nut job who spends vast amounts on vet bills, because the cats are part of the family and if we can give them good quality of life, then we do what we have to in order to achieve that. And I also have weird anxieties about money, so yeah, though I can see the attraction of being really done with the mortgage, it would absolutely be worth it to me not to have the cash-flow worry, even if that were actually a misplaced concern.

  6. SP Says:

    I’m with you. Even my remaining student loan is pretty low balance and low interest, I don’t save much paying it off now – so I don’t. I could argue for either decision though. Neither is wrong.

  7. Leigh Says:

    I hate making regular payments on anything and try to do annual charges as often as possible. So even though my regular payments on the mortgage are automated, I would probably pay off the mortgage with my savings account when it is down to $10k to be done with it. Not to save the interest, but to be done with it. Your taxes and insurance are higher than mine though. My property taxes are technically due in two installments but I’ve debated paying it all at the first due date and I’ve debated paying the year’s HOA dues at once too.

    • nicoleandmaggie Says:

      Good point– right now the mortgage company is paying taxes and insurance and I’m not even sure when those payments are due. I’d have to look it up. So that’s two more irregular payments I’d have to keep track of. Maybe 3 if they are paid in installments.

      We pay the HOA fees at once at the beginning of the year, though this year the bill got lost in the mail so we got hit with a late notice. (Which we contested and they let us pay it right away with no fee.)

      • Leigh Says:

        Is the house insurance the same company as your car insurance? I pay my condo insurance with one of my two car insurance payments each year. (Or when the car insurance was paid annually, the condo insurance was paid then.) I usually schedule the property tax payments in my bill pay service when I get the bill and then don’t worry about them other than checking that they got paid. Which this time, I accidentally had the wrong account number so they never got paid. This is why I schedule the payment for the first of the month when it is due…

      • nicoleandmaggie Says:

        It is, but all of their insurances (two cars, two life insurance, one umbrella, currently renters insurance… I’m probably forgetting something) are due at different times. Our cash flow isn’t enough that we can pay 100% of our insurance payments out of income or our slush fund unless we stagger the payments. Well, this year we could but only because there’s a huge amount in the “living in paradise for the year” fund.

    • nicoleandmaggie Says:

      Sidenote: It is a little crazy that our property taxes + insurance is still going to cost close to $10K/year and will be going up over time. One never really owns a home free and clear.

      • Leigh Says:

        Yup, that is insane. HOA dues + condo insurance + property taxes for me right now is about $8,000/year. Property taxes have been going up about 10% per year and HOA dues have been stable, as has insurance, so it would be a handful of years before I hit $10,000/year. Your mortgage P+I is actually about $200 more per month than mine! It’s fascinating how different property tax rates are in different parts of the country.

      • nicoleandmaggie Says:

        Some of that is probably also insurance since the cost to rebuild a 3000 sq ft place is pretty high.

        Once we’re done with the mortgage we should probably look into our home owners insurance and see if we have too much.

      • nicoleandmaggie Says:

        Oh, also, monthly payments are from a 20 year rate from our refinance.

    • Leah Says:

      I also like paying in lump sums. I hate the death by a thousand cuts of a monthly bill. If I could pay my car insurance once a year, I would.

      • Leigh Says:

        Especially with tiny amounts! I hate paying monthly for anything under about $150 I think. Like iCloud charges me $0.99+tax once per month! Why can’t I just pay that once per year!

      • nicoleandmaggie Says:

        I’m fine with all those little regular monthly fees so long as they go to my credit card and don’t charge me extra for the privilege. If I have to write a check, that sucks.

  8. chacha1 Says:

    Nope. :-) I’m in a liquidity-focused stage right now. $200 in savings over (say) ten months is a trivial $20 a month, which I can easily save in other ways, e.g. by ignoring the emails from BookBub.

  9. Debbie M Says:

    I would say no, but in real life, I actually did. It’s because I really hated my bank and did not want them to get that money.

    Also, the glory!

  10. First Gen American Says:

    You are asking a person who’s paid off a no interest student loan early. Yes I’d pay, it not the for money but for the milestone. But, I was also big on cutting down # of monthly bills (because my life was very complicated at the time managing 3 households, one of which was a rental property) and since I didn’t escrow my taxes, it did reduce my payments by 1.

    In your case it might add work trying to figure out the taxes etc, so I can see why you’d stall. I actually like that my escrow is built into my payments now. It is easier.

  11. Revanche @ A Gai Shan Life Says:

    Yes, if:
    My cash flow for the next year looked solid;
    I didn’t have any investments I was ready to shore up over the next year;
    I couldn’t earn more than that $180 with the $10k elsewhere.

    I suspect that if we were in the same place as you are, we probably wouldn’t unless we really felt in need of a Thing to Celebrate and again, opportunity cost was lower.

    Since we’re at the other end of the refi loan life and our cash flow is generally solid, I’m prepaying whatever and whenever I can!

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