Over the past two months I have been able to save our family about $20,000 in interest costs, shorten the terms of our loan, get a lower interest rate, and create a bit more equity than we had before (you can read about those posts here, here, and here). In doing so, our mortgage payment only went up about $35.
The terms on our new loan are 12 years, 2.875% interest rate, $1290 payment, with a balance of $155,150. Before we were at 15 years (really just over 13), 3.75% interest rate, $1256 payment, and a balance of $157,000.
So we certainly improved, but like many people, I hate debt, even if mortgage debt is considered good debt. I personally believe there is no such thing as good debt. However, I have also learned that I have to rethink my ideas about debt and just face the fact we might have to live with it for a while. I certainly understand the math by those, including Mr. 1500, who argue that paying off your mortgage is a fool’s errand, particularly because it is cheap money. Instead, I should put extra money to savings.
My conundrum has always been do I pay off debt faster or save because it is difficult to do both even though I try. So how can I do both?
With my old bank we couldn’t split our payments into bi-weekly ones so I was just paying a month at a time or I would pay it ahead. On Friday I decided to split change our mortgage payments from monthly to bi-weekly. Now this will mean that an extra payment will be added each year for the life of my mortgage. However, I get paid bi-weekly anyway so it isn’t like I am losing much money. I also cut $3500 off in interest and reduced our mortgage from basically 12 years to 10.5 years. And if I am ever upset with this or we desperately need the money I can go back to monthly payments.
But these biweekly payments will provide, at least for me, the ability to pay off debt, not really change our mortgage payment, and I can dedicate myself to savings, paying off other debt, or preparing for future costs (e.g. IVF, children, etc).