This Is What Happens When I Don’t Pay Attention

It pays to pay attention.

As I mentioned a few weeks ago, I recently renewed my mortgage1. As of last Friday, I’ve made 2 of the 240 odd payments that are required for the term of this particular renewal1. Which means I’m 2 more payments closer to being mortgage free. W00t!

When I arrived home the other night, I found a little package in my mailbox from my mortgage company. Inside it contained some of the relevant details about my mortgage (i.e., rate, term, payment frequency, and my payment amount), as well as information for accessing my account online.

The package also contained a small booklet to describe some of the details of my mortgage in plain english3. Because my mortgage agent is a huge slice of awesome-pie, I already knew that I could do several things to pay down my mortgage faster, including lump sums of up to 15% of the principle, doubling up a mortgage payment on any regular mortgage payment date, or increasing my yearly payment amount by 15%.

However, what I failed to realize, despite the fact that Rob explained this to me in detail, was that the 15% increase in payment could, if I wanted it, be compounded.

Say what now?

What I had thought was that I could, at any time, call up my lender and ask for my payment of say $500.00 every two weeks to be increased by 15% to $575.00. What I incorrectly assumed is that this could only be done once. In reality, I can do this on the anniversary of the mortgage.

I repeat, Say what now?

What this means is that I can increase my payment by 15% this year (say from $500 to $575), but then next year I could do it again – raising my then current payment of $575.00 by 15% to $661.25.

Holy shitballs I thought, and immediately pulled out my trusty spreadsheet to figure out what this could mean4.

After crunching the numbers I was floored. Absolutely floored. If I take advantage of this option, and only this option, my should-be-paid-in-20-years mortgage will actually be paid off in full in slightly less than 8.5 years.

Eight. Point. Five. Years.

Sponge Bob, master of all things financial, approves of the happy fun time zone.

Clearly that represents a butt-load5 of interest that I wouldn’t have to pay. It also represents 11.5 years of NOT PAYING A MORTGAGE. Consider that statement. Instead of dumping $500 every two weeks into the mortgage, I could be dumping that into other more exciting things – like adventuring and shenanigans. Over 11.5 years, that would amount to almost $150 thousand dollars of adventuring and shenanigans.

Unfreakingbelievable.

Of course, I need to be realistic here. By the end of those 8 years my payment would have to be about $1600. How likely is it that I’m actually going to be able to afford that in 8 years? I can say right now, not likely – but who knows – the possibility is there and that gets the nerd in me excited.

Still, this got me thinking about what I might be able to afford and once I figured that out I did some further number crunching. In this case, I have assumed that I will eventually be able to afford a payment of $1050 every two weeks. The end result – my mortgage could be paid off in 9.2 years.

EEP!

I think I head adventure calling.


1 Thank you very much Rob Campbell (@TheRobCampbell on The Twitter)

2 Woohoo – 0.83% finished.

3 Instead of the legalese that normally describes mortgage options.

4 Full disclosure: I was squeeing both at the idea of compounding my payment increases, and at the idea of getting my spreadsheet on. Because I am nothing if I’m not a man who loves all things spreadsheety.

5 A butt-load being the official economic term to describe these kinds of savings.


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3 Comments Add yours

  1. Nancy says:

    I bet more people would pay attention to their finances if they contained “happy-fun-time zones”.

    1. dangillis says:

      Agreed. Maybe lenders should consider this phrase. Of course, I’m going to claim ownership and demand appropriate compensation. Ha!

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