Clarksville Real Estate

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How would you like it if you could pay your 30 year mortgage off in 15 years? Many buyers cannot afford the payment on a 15 year mortgage, or don’t want to be cash poor by sinking all of their money into their home.

This post will show you how to pay your 30 year mortgage off in 15 years without having to commit yourself to the payment of a 15 year mortgage

First, let’s look at an example of the difference in payment between a $150,000 loan with a 30 year mortgage vs. one with a 15 year mortgage.

Purchase Price$150,000 Annual Interest Rate4.50% Loan30 Years Monthly Payment$760.03

Purchase Price$150,000 Annual Interest Rate3.75% Loan15 Years Monthly Payment$1090.83

So you get the benefit of the lower interest rate with the 15 year mortgage and that is appealing, but the payment is $330.80 more each month. I’ve learned a method which pays off the 30 year in 15 without committing yourself to such a high payment each month. This will save you tens of thousands of dollars over the course of the loan. And if you are my age you may even get your home paid off before the kids get to college. If you are older maybe you get it paid off by the time you retire.

So the basic rule to follow is simple. Each time you make your monthly payment you send the principal of the next months payment along with your payment. It is usually better to write a separate check and write “Pay to Principal” on the check so your lender applies it to the right place.

If you need help finding out what your next principal payment is going to be you need to look at an amortization schedule. This should have been given to you when you bought the home. It is in the big packet of papers that you brought home but probably never read through. If you cannot find your amortization schedule you can probably get one from your lender. If you are unable to get one I can easily generate one for you.

Here is an example of the first year of an amortization schedule for the above example of a $150,000 loan on a 30 year mortgage. In this example, when you make your July payment of $760.03 you would send your lender a separate check to pay the principal for August which would be $198.27. When you make your August payment of $760.03 you would send another separate check for the principal payment for September which would be for $199.01.

Amortization Schedule

Year    Month Payment          Principal          Interest            Balance

2011    Jul        $760.03           $197.53           $562.50           $149,802.47

2011    Aug     $760.03           $198.27           $561.76           $149,604.20

2011    Sep      $760.03           $199.01           $561.02           $149,405.19

2011    Oct      $760.03           $199.76           $560.27           $149,205.43

2011    Nov     $760.03           $200.51           $559.52           $149,004.92

2011    Dec      $760.03           $201.26           $558.77           $148,803.66

2012    Jan       $760.03           $202.02           $558.01           $148,601.64

2012    Feb      $760.03           $202.77           $557.26           $148,398.87

2012    Mar      $760.03           $203.53           $556.50           $148,195.34

2012    Apr      $760.03           $204.30           $555.73           $147,991.04

2012    May     $760.03           $205.06           $554.97           $147,785.98

2012    Jun       $760.03           $205.83           $554.20           $147,580.15

2012    Jul        $760.03           $206.60           $553.43           $147,373.55