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10 Years To Go

December 1, 2011 Leave a comment Go to comments

When we bought our first house this year, we took a path that’s slightly unusual these days.  We started off with a 25-year mortgage amortization which is considered low now but I always thought it was a bit long. A mix-up in the mortgage down payment instructions resulted in slightly higher payments at the start that knocked off a year, which was nice. Today we take the next step with the first of the annual 25% payment increases that we’re allowed. Amazingly this reduces the remaining time to under 17 years, saving 6 years and 5 months with a small extra payment.

While figuring out the impact of these increases I wondered how this trend would continue. Each increase should reduce the remaining time by less and less. Otherwise we would could pay it off in a year just by tripling our payments. After adding it up the results still surprised me.

By taking the 25% payment increase each year for our first 5-year term, and then holding the payments at the same level for the next 5 years, the mortgage would be gone in just over 10 years. After the second 5-year term there wouldn’t be enough left to renew again. And this is without even making any other pre-payments. If interest rates triple by the time we renew, that would only add 1 year.

Knowing this has started to work into our plans. We weren’t expecting to live here 10 years before, but now we’re starting to wonder if it could work out. Finishing one mortgage before getting another would be a nice move to get ahead! Not that we’re counting on this alone. I still aim to keep investing a much greater amount than we’re paying towards the mortgage. By continuing to work along these two paths we should get some interesting results, all starting from small changes.

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