My husband and I set a goal back in December 2016 to have our mortgage paid off within 5 years. While this may seem like an aggressive goal to some, it really is not when you look at the whole picture.
We have used several different methods while working to pay down our mortgage debt. We’ve made one extra payment per year. We’ve added extra here and there when we could.
These things have helped, but there is one major thing we’ve done that has allowed us to pay off over $150,000 in principal in the past 3 1/2 years.
We started using a program called Shred My Mortgage.
The gist of this program is to take out a Home Equity Line of Credit and leverage it to pay down your mortgage balance. The Line of Credit is used in conjunction with your checking account so you never have a high balance on the credit line for long.
You may be wondering why anyone would take out debt to pay off a different debt. It’s all on how you think about it and understanding how these two debts AND the way interest is calculated on them are different.
- Mortgage Debt – (Amortized Interest) Interest is compounded up front when the amortization schedule is created. It is front loaded, which means the majority of your payment goes towards interest the first half of your loan term.
- Home Equity Line Debt – (Simple Interest) Interest is compounded daily. This means that interest is calculated on the current loan balance each day. A Home Equity Line of Credit is linked up with your checking account, which means your balance will remain fairly low on a daily basis. The program calculates all of this for you so you can keep your balance low as many days per month as possible. This means you are paying only a couple hundred dollars in interest each year. You are saving THOUSANDS of dollars of interest on your mortgage though!
This method has been working well for us and we have paid off $150,000 in principal on our mortgage in the past 3 1/2 years. Over the life of the loan, we will save $179,000 in interest!
The Requirements For This To Work:
- You need to have some equity in your home in order to obtain a line of credit.
- You need to spend less than you make each month.
- Have a strong desire to pay off your mortgage.
This is an amazing program that has saved us SO much money!
