My husband and I bought our home 3 and a half years ago using a 30 year fixed rate loan at 3.375%. We chose the 30 year because with rates being as low as they were, would allow us the flexibility to pay extra when we had the funds and would be less stressful if something crazy were to happen in this boom-bust economy we live in here in West Texas.
With the rate we would have received for financing with a 15-year fixed rate loan, our total interest we would have paid over the course of the loan would be around $52,000. On the 30-year loan, it is projected that we will pay $126,000 over the course of 30 years. That is 2.5 times more!!! However, in order to pay the lower rate over the course of 15 years, we would be obligated for an additional $530/month (or $6,360 a year) and we were just not comfortable with that in case my husband were to lose his job or what not. Instead we choose to pay more on our own as we can increase our income.
How We Paid Extra
With our 30-year payment only being $940/month, not including taxes and insurance, we decided to pay an additional $500 a month towards the principal. I also took that total payment of $1,440, divided it by 2, and began making our payments every two weeks. So instead of paying $1,440 monthly I started making payments of $720 biweekly. Twenty-six payments a year comes out to a full extra payment of $1,440 that I wouldn’t have made otherwise plus the additional $500 or $6,000 a year comes out to a full $7,440 that we paid towards the mortgage.
Why We Choose To Pay Extra
We sacrifice a lot because we have an end goal in mind but paying extra also makes a great deal of financial sense. I mentioned before that our 30 year mortgage has a projected $126,000 worth of interest to be paid over the life of the loan and that just seems so overwhelming to me! I mean, we could go buy a whole other house for that amount!! By accelerating our payments and paying them biweekly, our mortgage term has gone from a 30 year to a 15 year. That will save us approximately $70,000 in interest if we stick to our current plan. The great thing is we still have that flexibility to lower the amount we are paying in case we hit a rough patch financially.
Our End Goal
People define wealth in different ways whether that means having millions in the bank or being able to buy whatever you want, however we are determined to keep our expenses low, as well as get rid of expenses like loan payments, and look for ways to increase our income. We do this because to us, wealth is when we can care for our family with no worries all the while having the ability to give back. And by giving back we don’t necessarily mean financially but more so with our time. Especially my husband, he needs to be present, physically working and helping others in order to feel as though he’s making a difference. And if we’re helping others and get the opportunity to share the news of Jesus, that just makes us feel as though we are accomplishing much, much more. This is a hard thing to do when you’re working all the time just to pay your bills instead of doing what your heart is telling you to do.
What does wealth mean to you and what are you doing to reach your financial goals?
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