Prepay your mortgage before buying the house

You don’t have to wait until you have a mortgage to start paying it down.

At some point in our lives, most of us lack the motivation to save for the future. Even forward-looking individuals like David sometimes lack the drive to set more aside for the future.

Although this behavior costs us dearly, most of us do it anyways.

If you’re making a conscious decision to enjoy the present, fine. But if you merely need a little extra motivation, I might have a solution.

The problem with the future is that it’s so distant. It can be difficult to measure your progress when your goal is so far away.

House purchases are a perfect example of this problem. Although we all know houses are expensive, many of us fail to save a prudent 20% down payment.

If you need help getting motivated, why not try pre-paying your mortgage before you actually borrow the money. You’ll save a bundle on interest costs and your progress will be very easy to measure.

A simple process

It works like this. First, decide how much a house would cost today. You can a few percent for inflation and appreciation for each year, depending on when and where you intend to buy a house.

Now take that amount and the interest rate you expect to pay and plug it into a mortgage calculator with a term of 30 years. Bankrate.com’s calculator can provide you with the amortization schedule you’ll need for the next step.

The amortization schedule will tell you how much principal (debt) will be paid down each month and how much of each payment will go to interest.

For example, a $200k loan for 30 years at 7% would have a monthly payment of $1,330. During the first year, almost $14,000 would go towards interest, leaving just $2,000 towards the debt.

Simply saving $170 a month for twelve months could wipe out the first year’s worth of payments. That’s a savings of $14,000.

Over time, more of each payment will go towards principal than interest, so you’ll need to contribute more to eliminate each payment.

But every dollar will bring you closer to the day when you have a sizable down payment or even enough to buy your house outright. If you can resist buying more house than you’d originally planned, you’ll be debt free sooner—free to spend your time and money how you see fit.