When Mark Janowiecki bought a house in Defiance, Ohio, in 2012, he knew he wanted to stay there for a while.
The 29-year-old police officer and married father of three purchased a four-bedroom home on five acres of land outside the city for $US79,500 with a 30-year fixed-rate mortgage at 3.375%.
His down payment was $US3,975, and they paid $US2,948 in closing costs, which included a tax escrow account, home insurance, and private mortgage insurance (PMI).
For the first year they made regular, steady payments of $US575 to their mortgage (including $US42 for PMI), but then Janowiecki came across some mortgage calculators online.
“We were talking about, ‘Someday I want to pay this house off, so what do we do?'” he remembers. “It said how much you have to pay per month to pay off your mortgage in a certain time frame, and as a joke we looked at 24 months. It was a lot of money, but it was doable.”
He explains that he and his wife felt like the mortgage payments they had been making weren’t even making dents in the principal, and they wanted to be debt-free. “We want to be able to provide a secure future for our family,” he explains. “We want to provide higher education for our kids and security for our retirement.”
After getting married in 2006, they eliminated some car and credit card debt, and now the only debt they hold is their mortgage. Between the $US3,500 he brings home from his job and the roughly $US1,300 his wife earns working as a babysitter and seamstress, their monthly household income is about $US4,800.
Now that he’s passed 20% equity and is no longer required to pay PMI, and his insurance and tax rates have changed a little, his required mortgage payment is $US532.
Here’s how Janowiecki distributes his monthly payments in order to accommodate his accelerated timeframe, using his April numbers as an example:
House insurance: $US54.25
Total payment = $US3,333
By allotting the bulk of his oversized payment to principal, he decreases the interest he pays over the life of the loan.
“What is great about this process is that your first payment under this formula is your biggest payment,” Janowiecki explains. “Every other payment you make gets smaller and smaller, because every month when you recalculate your monthly payment, the amount of interest you are paying goes down by a few dollars. Your payment gets smaller every month, especially once you hit the point when you can drop PMI.”
For instance, in May, the interest will decrease to $US69.80 and they will pay $US3,324 in total. In December 2015, if everything goes according to plan, their mortgage should be completely paid.
“According to my loan documents, our total finance charge for 30 years would be $US49,718,” Janowiecki shares. “I calculated that my wife and I will save roughly $US33,000 of that amount just by paying off the house early. That doesn’t include all the money we save by getting rid of PMI early, which I am sure is a couple more thousand.”
He cautions people starting a similar payment schedule to make sure the bank knows the extra money should go towards the principal — “I had my mortgage company make extra payments, put my in my escrow, or put my money in a suspense account and had to call them to fix my payment several times,” he says.
However, his strategy does mean they’re putting over $US3,300 of a $US4,800 income toward his mortgage every month, leaving little for their monthly expenses. “We’re really focused, and pretty much everything else is on hold,” he says.
Beyond the mandatory state retirement contributions through his job, they aren’t saving for retirement or college at the moment. He drives a 1988 Chevy pickup truck, and they both do what they can to bring in extra cash — he works a lot of overtime, and his wife, who is primarily a homemaker, found work as a seamstress and babysitter that she’ll probably dial down once the mortgage is complete.
“Money is very tight, and we go without a lot. But it’s kind of cool because we’re doing it to ourselves,” Janowiecki says. “When you watch the number go down every month it’s addicting — you want to do it faster and sacrifice more to see if you can speed it up.”
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