Homeownership is a long-term strategy to free up future cash flow. This means that we buy a house so that, one day, we won’t have a monthly house payment.
No mortgage payment and more financial margin to live and give generously? Sign me up, right?
Let me provide a great tip for how to get a better grip on your mortgage and stay focused on paying off your home loan— study your mortgage amortization schedule.
An amortization schedule shows you the breakdown of current and future mortgage payments, revealing how much of your payment is going to principal and interest, each month. Principal is the amount that pays down your mortgage balance, and interest is the amount that pays the bank.
You usually can access your mortgage’s amortization schedule through your lender online. And while most people don’t look at it, you should.
How often do you look at it? If you are like most, probably not that often. But you should. Here’s why you should grab a nice, hot cup of coffee and spend some time with your amortization schedule.
1. Your amortization schedule helps you understand where your money is going. One of the most important steps to take when pursuing financial health is this—know where your money is going. When you make a mortgage payment, know where it goes. A portion of your mortgage payment is going to pay down the principal. Another portion of the payment is going to interest. More than likely, the amount of interest you pay as opposed to principal will make you cringe. How much is going to each category? You should know this.
2. Your amortization schedule lets you know how much longer you have to go. Three hundred sixty months. When you sign a thirty-year mortgage, you have three hundred sixty months until you pay it off, assuming you just make the regular payments. But you probably have been chipping away at your mortgage for a few years. So, how many months do you have left? What date does it show for your final payment? For some, the answer will result in celebration, but for most, the answer will be accompanied with a groan. My hope is that the first two points in this article will push you to do the third point.
3. It shows you the value of making additional principal payments. For many, the mortgage payment goes primarily toward interest. That stinks. But there is good news—you can do something about it. Additional principal payments reduce the amount of interest you pay, sometimes significantly. Principal payments provide an immediate return on your invest in the form of reduced payments. And an amortization schedule helps you see how that happens.
4. It will motivate you like crazy! When you see all of the future interest you are going to pay, your stomach will turn. And it should. Hopefully, you will find yourself desperate to quickly pay down your mortgage principal to avoid the interest expenses. It is tough to look at an amortization schedule and not be motivated.
So, take a financially smart step and look at your mortgage’s amortization schedule today. Get a good grip on where your money actually goes when you make a mortgage payment. Let it motivate you to get debt free, so you can live and give more generously.