Posted by Tim Stobbs on January 18, 2008
A while back I mentioned my mortgage might prove to be a small problem to my retirement plan. Oh has that ever changed. By merely doing a lump some payment last year and changing my payments to every two weeks instead of twice a month I’m now only going to have under $10,000 left if I retire at 45. Not too bad of a lump sum payment to deal with at that point.
The reason you can see such dramatic change to your mortgage in the beginning is most of your payment is mostly interest for the first five years (assuming a 25 year amortization). So anything extra goes to your principle and saves you huge amount of interest payments. Yet right now my mortgage is starting to come up to the trip point where I’ll be paying more off in principle per year than interest. From there paying off your mortgage really accelerates and your additional savings on interest from extra payments starts to decrease (when compared to the extra payments at the start).
So I might not get such a huge result from accelerating the payoff further, but it’s still an option if I find I have extra cash at the end of the year. After all it’s still a debt and having no mortgage payment still gives me a very attractive cash flow while I’m still working. It’s something to consider after I max out my RRSP’s for the year.
Have a good weekend,