This blog post is for:
- Anyone who wants to pay off their home early or in time for retirement
- Active Duty military members who live at a duty station for a short period and want to transition their current home from a VA loan to a conventional mortgage
- Those with high-stress or hard-on-the-body jobs (medical, police, military, trades) who anticipate making an outsized wage for a limited time period
Let’s say you expect to be at your duty station for 3-5 years and purchase your current property for $500K on a VA loan with $0 down. You want to pay 20% in 3 years ($100K assuming a $500K property valuation) and then transition to a conventional loan.
- Mortgage Amount: $500K
- Interest Rate: 5%
- Annual Tax & Insurance: $5K
- Monthly Payment: $2,684
- Goal: Pay down $100K in 3 years
1. Determine Amount & Period: First, determine the amount you want to pay down and the timeframe in which you’d like to accomplish your goal.
2. Determine Current Amortization Schedule: Use an online calculator that produces an amortization schedule, like this one by calculator.net. Plug your numbers into the calculator and determine how much of the principal will be paid with your regular monthly payment. In this example, ~$23K is paid down in 3 years with the regular monthly mortgage payment.
3. Calculate Additional Principal Needed: That leaves a gap of ~$77K or about ~$2K per month over 36 months.
4. Calculate Total Payment Needed: Applying an additional payment of $2K ($4,684 per month total) to the principal each month gives us a readjusted balance of ~$399K on the amortization schedule after 36 months, achieving our goal.
5. Recalibrate Annually: Remember to recalibrate your annual payment to account for any escrow adjustments.
My husband and I have two properties, and in both cases, when we were researching homes, we looked for what we could comfortably afford on a single income (not more than ~25-35% of a single income) to be conservative. (You can read more about our go-to affordable homebuying strategy HERE.) We’re both working full-time, so in our case, we’ve just both been making the full mortgage payment rather than splitting it 50/50.
This will cut our 30-year loan to 10 years, save us over $300K in interest payments, and still leave us room for other saving, investing, and fun activities.
If you’d like to partner to strategize on paying off your home early and saving hundreds of thousands on interest payments, visit MakingMoneyIsSimple.com to get started with a free consultation.