Ideas on how to track how soon I'll pay my mortgage off?

[RhodyUNC]

Hi all,

The wife and I are 1.5 years into a 30-year mortgage that we're paying down as fast as we can.  This year she's started back to work and we're making extra payments every month.  We've also put extra lump sums towards the mortgage as we can from bonuses (once or twice a year).  This is all great, but it's hard to keep track of how it's impacting our payoff date.  We're quickly getting to the point we can't use simple online calculators (https://www.mtgprofessor.com/mpcalculators/ExtraPaymentsCalculator/ExtraPayments1.asp) because we've made so many irregular payments. 

Ideas on easy ways to figure this out/keep track of the benefits?  We'd like to be encouraged every time we make an extra payment about the interest we're saving and how much sooner we'll have the house paid off but can't figure out a sane way to do it.

Ideas and advice welcomed!

Thanks!

[kanga1622]

I built a basic spreadsheet to track how the extra payments affected the payoff date. I usually had to adjust it slightly every couple of months as the interest the sheet calculated and the bank had posting would be a couple of pennies off. Worked great as a motivator in the beginning. Now we are so close to payoff that we don’t actually track it; we just keep paying and watch that payoff number drop every time I log into the bank website.

[boarder42]

First before you start tracking this are you making all tax advantaged accounts and only using taxable dollars to pay this down. While still less efficient with taxable dollars than in investing it's wildly inefficient if you aren't maxing every tax advantaged account first.

[CheapScholar]

First, I very much agree with boarder about maxing out tax advatanged accounts first.  Paying off your mortgage should generally be a privilege for those lucky enough to have enough income to do both.

As for projecting your new payoff date, I'd suggest you not bother considering your erratic payments (large bonuses once or twice per year).  Your payoff date is probably changing every few months.  Not to mention, by the time your mortgage balance is 5K or 10K, you'll probably just go to the bank and settle. 

I've written on the mortgage payoff thread that I use Lego bricks to visualize my mortgage.  I have a sheet of small bricks and each brick represents $1,000 of my mortgage principal.  For me this is easy because I generally pay $1,000 of mortgage principal every month.  When I get my statement every month I simply pull off a brick and toss it in my kid's Lego box.  There are plenty of creative ways to countdown, but what I'm saying is do your countdown by principal dollars and NOT by projected payoff date because the constant change makes it futile. 

Edit:  if you really want to track interest saved, you could note the amount of interest you would have paid over the life of your mortgage with regular payments and track how much interest you pay each month.

[Olórin]

You might find this spreadsheet helpful, as it lets you add an additional payment in the months you make one.  I think I'll save the spreadsheet for myself in the future.

https://sites.google.com/site/spreadsheets/spreadsheet-categories/financial-sheets/mortgage-amortization-with-paydown

[MDM]

From http://forum.mrmoneymustache.com/mustachianism-around-the-web/amortization-schedule-calculator/msg1219175/#msg1219175:

1. Open a new sheet in Excel
2. Press the "sheet1" tab on the bottom with a right-click
3. "Insert" --> "Spreadsheet solutions" --> "Loan Amortization"

[RhodyUNC]

Thanks all!

Olórin, that was exactly what I was looking for.

CheapScholar & boarder42, can you point me towards threads, articles or examples praising the virtues of tax advantaged accounts instead of paying the mortgage down?  Would be helpful for me to read a bit about the idea and to see some hard numbers.  I find well made Excel spreadsheets convincing and so does my wife!

[cchrissyy]

i use decisionaide.com  because it can handle all sorts of irregular lump sums and ongoing payments

[HawkeyeNFO]

What's the mortgage rate?

The answer will help determine if paying off the mortgage is smart or dumb.  You might be better off investing that money instead of locking it up in real estate. 

[boarder42]

https://forum.mrmoneymustache.com/investor-alley/investment-order/

Investment order found here. 

[talltexan]

Rhody-
are you paying PMI? I've seen examples in other discussions here in which you can pretty easily achieve 8%+ risk-free for the money you use to clear PMI.

[CheapScholar]

The mortgage rate is important, but so is your marginal tax rate.  So is the quality of your (or spouse) 401k/403b plans (fees and quality of investment options).  Although, paying off a mortgage is usually not the wisest option compared to maxing out plans, and I'm not sure it would ever be better than maxing out IRA plans. 

Think about it, if your upper dollars are in the 25% federal tax bracket, why wouldn't you avoid (OK, defer) that with tax advantaged accounts as opposed to fighting your mortgage, which I assume is between 3 and 4%?

I do pay extra on my mortgage, but I'd never do it at the expense of my pre-tax deductions. 

[boarder42]

Rhody-
are you paying PMI? I've seen examples in other discussions here in which you can pretty easily achieve 8%+ risk-free for the money you use to clear PMI.

Those examples do the math incorrectly.  in almost all circumstances today PMI adds less than .5% to your overall mortgage rate. 

PMI like mortgage debt is overly demonized, typically due to lack of understanding.

[FIRE Artist]

Can you see your mortgage through internet banking?  Does it show your amortization schedule?  Or perhaps lists the number of months out?  Mine does and it is responsive to pre-paying principle, it modifies the number of months left on the mortgage to account for it, and it also shows the original last payment date for comparison. 

[Slow&Steady]

I use undebt.it to track projected payoff dates.

[talltexan]

Rhody-
are you paying PMI? I've seen examples in other discussions here in which you can pretty easily achieve 8%+ risk-free for the money you use to clear PMI.

Those examples do the math incorrectly.  in almost all circumstances today PMI adds less than .5% to your overall mortgage rate. 

PMI like mortgage debt is overly demonized, typically due to lack of understanding.

I think your objection to the example here (https://forum.mrmoneymustache.com/ask-a-mustachian/pmi-payoff-roi/msg197898/#msg197898) would be in the failure to account for the tax deduction?

But taxes may not be relevant for someone who is below the threshold on income. Taxes also wouldn't figure for investing when most of that is done in a 401K.

Another issue is that--yes--the marginal effective interest rate changes dollar for dollar. But our financial decisions are often made at the margin, too.

Are there other categories of math mistakes I've missed?

[boarder42]

Rhody-
are you paying PMI? I've seen examples in other discussions here in which you can pretty easily achieve 8%+ risk-free for the money you use to clear PMI.

Those examples do the math incorrectly.  in almost all circumstances today PMI adds less than .5% to your overall mortgage rate. 

PMI like mortgage debt is overly demonized, typically due to lack of understanding.

I think your objection to the example here (https://forum.mrmoneymustache.com/ask-a-mustachian/pmi-payoff-roi/msg197898/#msg197898) would be in the failure to account for the tax deduction?

But taxes may not be relevant for someone who is below the threshold on income. Taxes also wouldn't figure for investing when most of that is done in a 401K.

Another issue is that--yes--the marginal effective interest rate changes dollar for dollar. But our financial decisions are often made at the margin, too.

Are there other categories of math mistakes I've missed?

No it has nothing to do with taxes. 

[boarder42]

https://forum.mrmoneymustache.com/ask-a-mustachian/getting-rid-of-pmi-what-'return'-would-i-get-for-paying-down-my-mortgage/

Scroll down this thread MDM and I did the correct math 2 different ways and arrived at the same answer.

[Greenback Reproduction Specialist]

I built a basic spreadsheet to track how the extra payments affected the payoff date. I usually had to adjust it slightly every couple of months as the interest the sheet calculated and the bank had posting would be a couple of pennies off. Worked great as a motivator in the beginning....

+1

This is exactly what we do, its pretty easy to create an excel sheet that can track everything.

We aren't close enough yet, I still love tracking the payoff date and amount : )

[Dicey]

https://forum.mrmoneymustache.com/investor-alley/investment-order/

Investment order found here.

And excellent reasons not to prepay your mortgage here:

https://forum.mrmoneymustache.com/throw-down-the-gauntlet/dont-payoff-your-mortgage-club/msg1773803/#msg1773803

[RhodyUNC]

Rhody-
are you paying PMI? I've seen examples in other discussions here in which you can pretty easily achieve 8%+ risk-free for the money you use to clear PMI.

No PMI on our end.  Was able to put 20% down and go from there.

[RhodyUNC]

https://forum.mrmoneymustache.com/investor-alley/investment-order/

Investment order found here.

And excellent reasons not to prepay your mortgage here:

https://forum.mrmoneymustache.com/throw-down-the-gauntlet/dont-payoff-your-mortgage-club/msg1773803/#msg1773803

I like this line of thinking.  What I got from both of these links (including the one earlier in the comments) was the difference between the returns to the stock market (~7% but variable) versus the interest rate of my mortage (3.75% which is low but stable). 

What I am still hazy on how to factor in the tax advantaged part.  This saves us 25% (coming or going) vs just investing in unprotected mutual funds, but I'm still paying 25% on one end or the other right?  Why is this tax protected aspect important vs the mortgage?  How does this complicate the 7% vs. 3.75% calculation? 

[rpr]

PTF.

[Scortius]

https://forum.mrmoneymustache.com/investor-alley/investment-order/

Investment order found here.

And excellent reasons not to prepay your mortgage here:

https://forum.mrmoneymustache.com/throw-down-the-gauntlet/dont-payoff-your-mortgage-club/msg1773803/#msg1773803

I like this line of thinking.  What I got from both of these links (including the one earlier in the comments) was the difference between the returns to the stock market (~7% but variable) versus the interest rate of my mortage (3.75% which is low but stable). 

What I am still hazy on how to factor in the tax advantaged part.  This saves us 25% (coming or going) vs just investing in unprotected mutual funds, but I'm still paying 25% on one end or the other right?  Why is this tax protected aspect important vs the mortgage?  How does this complicate the 7% vs. 3.75% calculation?

Basically, extra payments on a mortgage come from cash, which is most certainly not tax-advantaged. Compared to putting your income into a tax-advantaged 'bucket', you are paying a hefty premium (your tax rate) just to access your own money to pay off the mortgage.  As you stated, you are essentially getting an immediate one time return of 25% (or so) any time you put your income into a tax-advantaged bucket.  That kind of return is simply impossible to beat, and thus it should always be your first priority (even more so if an employer match is involved).

Paying down the mortgage vs. investing should only come into play after you've taken full advantage of your tax-advantaged opportunities.

[Scortius]

Another important thing to note, a fixed rate mortgage is not adjusted to inflation.  Thus, for comparison you should look at real market returns (not inflation-adjusted nominal returns).  Real returns with dividends reinvested are generally around 10% or 11%.

[MDM]

Another important thing to note, a fixed rate mortgage is not adjusted to inflation.  Thus, for comparison you should look at real market returns (not inflation-adjusted nominal returns).  Real returns with dividends reinvested are generally around 10% or 11%.

Good sentiment but the wording is backwards. 

If the real (not counting inflation) return is 4% and inflation is running 10%, the nominal return is ~14%.  It would be the 14% nominal return with which an unaffected-by-inflation mortgage rate should be compared.

[Scortius]

Another important thing to note, a fixed rate mortgage is not adjusted to inflation.  Thus, for comparison you should look at real market returns (not inflation-adjusted nominal returns).  Real returns with dividends reinvested are generally around 10% or 11%.

Good sentiment but the wording is backwards. 

If the real (not counting inflation) return is 4% and inflation is running 10%, the nominal return is ~14%.  It would be the 14% nominal return with which an unaffected-by-inflation mortgage rate should be compared.

Ah yes, good catch!

[COEE]

I've used Vertex42 in the past
https://www.vertex42.com/Calculators/home-mortgage-calculator.html

[jean]

You just need a loan amortization spreadsheet.  Microsoft has one: https://templates.office.com/en-us/Loan-amortization-schedule-TM10073881

Plug in your numbers and manually enter the extra payments where you are going to make them.  As you enter extra payments the "total number of payments" and the "total interest" go down. 

Whether or not you should prepay your mortgage is debatable, but how to track it is straightforward.

[KBecks]

You can also join the mortgage payoff club threads here.  I have no fancy tracking, but post our progress here every month.

[99to1%]

We are aggressively paying off our mortgage too.  Hoping to pay off our $500K+ mortgage within 5 years.  But like some people mentioned, it's important to make sure you are first fully taking advantage of the tax-advantage opportunities.