Picking up where we left off
In our last post, we talked about how we got a handle on understanding our finances. We started doing a weekly financial review where we talk about what we’ve spent in each category and where we can make adjustments to stay on track. We included a year-to-date cash flow to check in and make sure we are keeping our heads above water. I love this report!
We’ll get into the nuts and bolts of how, but first let’s answer the $100,000 question:
Simple. If I don’t have to pay for something, especially on a monthly payment plan, I won’t. I can spend that money on something else that makes my life better instead of preserving the status quo. This is the core of self-sufficiency and financial independence. There are tax implications when you pay off a mortgage, but it’s still worth it. Don’t believe me yet? Let’s look at the numbers:
- Mortgage details: 9 years into a 30-year mortgage, principal is $328,500, interest rate 3.796%, monthly payment $1,897.
- Total interest scheduled to be paid over the life of the loan: $147,500
- Annual payments: $22,764
- Annual mortgage interest: just shy of $12,000
- Personal information:
- Married filing jointly
- $132,000 taxable income
- $5,000 charitable contribution
Tax on this income, whether withheld or otherwise paid, is $18,268
Leave the personal information unchanged, but remove the mortgage and the tax is $19,368 – an increase of $1,100. Nobody likes paying more taxes, but I’m saving $22,764 that I used to send to the bank every year. I’ll take a net savings of $21,664 ($22,764-$1,100) every year any day – you probably would, too. Also, anything I can do to not have to pay all $147,500 in mortgage interest over the life of the loan will save me money in the long run. Remember, mortgages cost more the longer you pay on them.
How we’re paying off two mortgages early is in the next post. Don’t forget to join the mailing list!